China-HK Bond Connect link to open by year-end

China plans to introduce a bond trading link between Hong Kong and the mainland by year-end, according to premier Li Keqiang.

Dubbed “Bond Connect”, the programme would operate alongside the existing Stock Connect system that allows international and mainland investors their only direct access to each others’ markets.

On Wednesday, the Chinese premier said: “We are preparing to implement for the first time this year a bond market connect between the mainland and Hong Kong,” which would allow “overseas capital to buy mainland bonds overseas for the first time”.

He added: “This will help Hong Kong maintain its status as an international financial centre, and provide Hong Kong investors with more options.”

Significantly, Bond Connect would not require international investors to open accounts onshore, but rather allow them to trade mainland bonds from their Hong Kong accounts.

The scheme has long been on the wish list of Charles Li, the chief executive of the Hong Kong Stock Exchange, who is keen to position the exchange as the financial securities gateway between China and the outside world.

The premier’s blessing gives the project a big push: it was a similar announcement from China’s Mr Li that signalled the green light for the Stock Connect programme three years ago.

The move is the latest in China’s efforts to attract international investors to its vast bond markets — the world’s third-largest, with some Rmb64tn ($9.3tn) of debt outstanding.

Last year, China eased the approvals process for foreign fund managers to buy Chinese bonds, and just last month it removed another stumbling block by allowing them to hedge the currency risk of those purchases onshore.

However, foreigners still hold less than 2 per cent of Chinese debt.

With Bond Connect, “the aim is to provide cross-border cash bond trading and settlement connectivity with the mainland’s major onshore bond market infrastructures”, the HKEx chief said recently. “We are confident that we can deliver a unique value proposition to make existing markets connect better, without trying to reinvent the way that investors currently trade bonds.”