Key Information

inSight
Speeches
Speeches by Speaker
Norman T.L. Chan
Peter Pang
Eddie Yue
Arthur Yuen
Raymond Li
Edmond Lau
Esmond Lee
Meena Datwani
Vincent W.S. Lee
James Lau
Joseph Yam
Y K Choi
William Ryback
David Carse
Tony Latter
Andrew Sheng
Hans Genberg
Simon Topping
Michael Taylor
The Honourable Donald Tsang
Chen Yuan
Dai Xianglong
Don Brash
Jaime Caruana
Andrew Crockett
Mario Draghi
David Eldon
Stanley Fischer
Timothy F. Geithner
Stephen Grenville
Kenneth G. Lay
William McDonough
Ernest Patrikis
Glenn Stevens
Jean-Claude Trichet
Tarisa Watanagase
Zeti Akhtar Aziz
Press Releases
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Press Releases by Category
Bogus Voice Message Phone Calls
Banking in Hong Kong
Fraudulent Websites, E-mails and Telephone System, and other fraud cases
Granting of Banking Licences
Exchange Fund
Table of Multiples of Notes and Payments for Allotted Amount under non-competitive tender
Table of Multiples of Notes and Payments of Application Amount under non-competitive tender
Tender of Exchange Fund Bills and Notes
Tender Results of Exchange Fund Bills and Notes
Tentative Issuance Schedule for Exchange Fund Bills and Notes
Appointments and Departures
HKMA Pay Review
HKMA Publications
Speeches
The Hong Kong Mortgage Corporation
Hong Kong Note Printing Limited
Hong Kong Institute for Monetary Research
Exchange Fund Investment Limited
Others
Hong Kong Financial Infrastructure
International Relations
Investment Products Related to Lehman Brothers
Monetary Policy
Notes and Coins
Renminbi business
Credit Card Lending Survey
Monetary Statistics
Residential Mortgage Survey
Year 2000
Others
Guidelines and Circulars
Guidelines
Circulars
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
375.0271

insight

Grasping the Opportunities Offered by Bond Connect

(Translation)

As Hong Kong began its first trading day on Monday, 3 July, following the celebrations marking the 20th anniversary of the establishment of the Hong Kong Special Administrative Region, the main lobby of the Hong Kong Exchanges and Clearing Limited was packed with guests.  In a ceremony witnessed by Hong Kong’s new Chief Executive and hundreds of other dignitaries and media representatives, I firmly beat a gong three times together with Mr Pan Gongsheng, the Deputy Governor of the People's Bank of China who was in town specifically for the occasion, marking the formal launch of the trial operation of the Bond Connect scheme.  Bond Connect is a milestone for the mutual access of capital markets between the Mainland and Hong Kong.  After the ceremony, a colleague asked why I banged so hard on the gong, I simply quoted a Chinese saying, "big efforts yield good rewards".

Indeed, Bond Connect commenced transaction and settlement only four months after it was announced by Premier Li Keqiang in March, thanks to two years of hard work by the various relevant authorities and departments on the Mainland and in Hong Kong.  As the HKMA is the lead authority from Hong Kong, our colleagues travelled frequently to the Mainland for all the initial preparatory work, and went into overdrive especially in the run-up to the launch.  These unsung heroes are to be applauded for making the trial operation a success!

Hong Kong has long been the launch pad for piloting new measures over the course of the Mainland’s financial opening-up, and also the bridge connecting the Mainland and international capital markets.  From the introduction of the Shanghai-Hong Kong Stock Connect in 2014, the Shenzhen-Hong Kong Stock Connect in 2016 to the launch of Bond Connect on Monday, Hong Kong has served as a platform connecting investors from the Mainland and the rest of the world.  The expansion of mutual access from the stock markets to the bond market again highlights Hong Kong’s unique role as a financial intermediary in facilitating global investors’ access to the Mainland’s financial markets.

To perform our function as a financial intermediary effectively, we must ensure funds flow smoothly through efficient and safe conduits, which in turn requires the development of sound and robust financial infrastructure – akin to the building of physical highways and bridges.  Yet no financial infrastructure can be built overnight.  Success depends on a forward-looking and holistic vision.  The involvement of the Central Moneymarkets Unit (CMU) in Bond Connect is the latest example of this.  Established by the HKMA in 1990, CMU has provided investors with efficient, secure and convenient bond settlement services over the years.  It now serves some 200 members, including local and global banks, trust companies and custodians.

CMU’s track record of convenient and reliable service has gained confidence of global investors.  The selection of CMU to provide settlement and custody services for Bond Connect allows global investors to use familiar highways whilst adding a new road reaching into the Mainland bond market, which provides convenience and greater flexibility for investors to manage their bond investments.

The Mainland bond market follows the direct holding arrangement for bond registration and custody, which differs from the nominee holding arrangement in Hong Kong and most overseas markets.  Through CMU, international investors can continue to settle and hold bonds using familiar practices, whilst obviating the need for the Mainland bond market to make any fundamental change to its existing mechanisms. This reflects the unique advantage of Hong Kong as a hub for financial intermediation for mutual access with the Mainland markets.

Northbound Trading, which was launched first under Bond Connect, has been running smoothly during the first few trading days of its trial operation.  We will continue to closely monitor its operation, draw experience and make refinements where necessary.  Some may wonder how much capital will be attracted via Bond Connect.  No doubt many will hope funds will flood in, but like any newly constructed bridges or roads, there is always a process for observation, familiarisation and adaptation during the initial stage.  When I look at this from the perspective of market infrastructure development, I focus more on whether, in the long run, Bond Connect can promote bond market development in both Hong Kong and the Mainland, and bring mutual benefits to the two economies; and whether it can further enhance Hong Kong’s status as an international financial centre.  I have always believed that as long as the bridges and roads are well-built, and the two markets are mutually accessible, we should not worry about lacking investment flows.  The launch of Bond Connect will greatly enhance investors’ demand for cross-border settlement, custody, asset management, risk management and other financial services, which will in turn create more high value-added jobs in Hong Kong.

Mainland China has the world’s third largest bond market after the US and Japan.  The outstanding amount of bonds under custody in the Mainland bond market amounts to RMB67 trillion while foreign investors hold less than 2%.  This shows there is enormous potential for future growth.  Indeed, while preparing this article, the Mainland announced a substantial increase in Hong Kong’s Renminbi Qualified Foreign Institutional Investor (RQFII) quota from RMB270 billion to RMB500 billion, demonstrating its continued efforts to promote the internationalisation of the renminbi.   Together with the launch of Bond Connect, I believe the number of foreign investors entering the Mainland capital markets through Hong Kong’s platform will further increase in the future.  This will be conducive to enhancing Hong Kong’s status as an offshore renminbi centre.

 

Norman Chan
Chief Executive
Hong Kong Monetary Authority

6 July 2017

Last revision date: 7 July 2017
ABOUT THE HKMA
The HKMA
Tender Invitations
Careers@HKMA
Legislative Council Issues
Links
The HKMA Information Centre
KEY FUNCTIONS
Monetary Stability
Banking Stability
International Financial Centre
Exchange Fund
PUBLICATIONS & RESEARCH
Annual Report
Half-Yearly Monetary & Financial Stability Report
Quarterly Bulletin
HKMA Background Briefs
Reference Materials
Research
MARKET DATA & STATISTICS
CMU Bond Price Bulletin
Economic & Financial Data for Hong Kong
Monthly Statistical Bulletin
Monetary Statistics
KEY INFORMATION
Press Releases
Speeches
Guidelines & Circulars
Forthcoming Events
inSight
OTHER INFORMATION
Account Opening
Consumer Corner
Consumer Education Programme
Complaints about Banks
Complaints about SVF Licensees
Internet Banking
Fraudulent Bank Websites, Phishing E-mails and Similar Scams
Be Careful of Bogus Phone Calls and SMS Messages
Authenticate the Callers and Bank Hotline Numbers
Register of AIs & LROs
Register of Securities Staff of AIs
Register of SVF Licensees
Investment Products Related to Lehman Brothers
Photo Gallery