Authorities Discuss Plan for Mainland Investors to Trade Bonds in Hong Kong

What’s new: China’s central bank and the Hong Kong Monetary Authority are discussing a plan for opening a “southbound” channel in the Bond Connect program that would allow Chinese mainland investors to trade offshore bonds on the Hong Kong market, central bank-backed newspaper Financial News reported (link in Chinese) on Wednesday.

The southbound channel is expected to enrich investment alternatives for mainland investors, bring more mainland capital to Hong Kong and attract more companies to issue bonds on the market.

What’s the background: The move is a gesture to show the two-way opening-up of China’s financial system, Xing Zhaopeng, a China markets economist with ANZ Research, said in a Thursday research note. The northbound channel was launched in July 2017, expanding global investors’ access to the Chinese mainland bond market.

After the southbound channel is launched, the size of the capital outflow from the mainland is expected to be small compared with inflow, said Xing. But it is still crucial for Hong Kong as an international financial hub to attract more bond issuers.

China has the world’s second-largest bond market (link in Chinese), behind only the U.S., with currently more than 110 trillion yuan ($16.8 trillion) in outstanding bonds.

Related: Chart of the Day: Overseas Investors Trading More Chinese Bonds Through Connect Program Than Ever Before

Quick Takes are condensed versions of China-related stories for fast news you can use.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)

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