China opened for foreign investors to access the bond market via Hong Kong

Moscow. July 3. INTERFAX.RU – China and Hong Kong on Monday launched a long-awaited program of Bond Connect – cross trades that are open for foreign investors to access the debt securities market in mainland China of more than $9 trillion, writes The Wall Street Journal.

Thus, Beijing continues to fulfill the promise to liberalize and strengthen the capital markets of the PRC. Authorities timed the launch of bundles of trades in the bonds on the 20th anniversary of return of Hong Kong under Chinese rule. China’s Central Bank approved the program in may in addition to the earlier schemes launched cross-trading of shares between Hong Kong, Shanghai and Shenzhen, (Stock Connect).

Is the “Northern route” cross trades, that is, foreign investors without a trading account in mainland China have the opportunity to buy and sell Chinese bonds. The date of the opening of the “South channel”, which will open to Chinese investors in bonds the way in Hong Kong, is still unknown, writes the Financial Times.

Trading on Monday was subdued over the first 22 minutes, the volume of transactions has exceeded 2 billion yuan ($295 million), reports Bloomberg. Among the first investors, noting the Bond program, Connect, was HSBC Holdings, BNP Paribas, Citigroup, Standard Chartered and the division of the Bank of China asset management.

The debt securities market of China is the third largest in the world, but foreign investors own less than 1.5% bonds (Goldman Sachs estimates is 1.4%; according to estimates by Standard Chartered – 1,25%). According to BNP Paribas, the “international norm” of foreign investment in the domestic bond market are 10%.

“We remain of the opinion that in the next decade the influx of additional investment in the Chinese domestic bonds could exceed $1 trillion,” wrote the review on Monday, analysts at Goldman Sachs.

Standard Chartered expects net inflows to the bond market of China in the amount of 100 billion yuan by the end of this year.

According to Chinese media, authorities have approved 20 market makers for the Bond Connect, including 14 Chinese and six foreign institutions.

Two of the largest Chinese state-owned banks – the agricultural development Bank of China (Agricultural Development Bank of China Ltd.) and China development Bank (China Development Bank) – will post bonds to offshore investors on Monday and Tuesday.