UPDATE 2-China to consider cross-border bond link with Hong Kong this year


* Li says to consider connecting mainland, Hong Kong bond

* Link allows foreign capital to buy mainland bonds from

* Will help HK maintain international financial center

(Adds HKEX response, more details)

BEIJING, March 15 China is considering linking
the debt markets of Hong Kong and the mainland this year, as it
bolsters support for the economy of the former British colony,
Premier Li Keqiang said on Wednesday.

China’s and Hong Kong’s equity markets have been linked
through a “Stock Connect” scheme that allows foreigners to
access Chinese “A” shares through the Hong Kong exchange, and
mainlanders to access Hong Kong shares through the Shanghai and
Shenzhen exchanges.

Exchanges on the two sides have been working on a similar
arrangement for bonds, as China looks for ways to further open
its capital markets and attract foreign investment. China’s
restricted equity market ranks as one of the largest in the
world by market cap and daily trading volume, while its bond
market is the world’s third biggest.

The linked market will also give Chinese investors, with
limited investment channels, a chance to diversify their

“This year, we are considering for the first time
establishing a bond market connect between the Hong Kong and the
mainland, allowing foreign capital to buy mainland bonds from
overseas and Hong Kong will be the first to benefit from such an
arrangement,” Li said.

“This will help Hong Kong maintain its status as an
international financial center and provide Hong Kong residents
more investment channels,” he told a news conference at the
close of the annual session of the National People’s Congress,
China’s parliament.

He added that cooperation over the bond market was “what the
country needs”.

Hong Kong Exchange and Clearing Ltd (HKEX)
welcomed Li’s announcement, saying the Bond Connect is “a major
breakthrough” in China’s capital market development and further
strengthens Hong Kong’s role as a gateway between the mainland
and international markets.

“HKEX is progressing with the preparatory work for Bond
Connect under the guidance of the Mainland and Hong Kong
authorities,” the exchange said in a statement.

China has gradually opened its bond market to foreign
investment and redoubled efforts to lure foreign capital, but
investors have said market accessibility and concerns about the
stability of the yuan currency – and capital controls enacted to
protect it – could impede inflows.

Standard Chartered estimated that the value of outstanding
onshore bonds may rise to 82 trillion yuan ($11.9 trillion) by
the end of this year from 64.3 trillion as of end-2016.

By the end of last year, foreigners held a mere 870 billion
yuan worth of bonds in the Chinese market, an increase of 83.4
billion yuan from the year before, the State Administration of
Foreign Exchange said.

($1 = 6.9142 Chinese yuan)

(Reporting by Ryan Woo, Kevin Yao and Philip Wen; Writing by
John Ruwitch in SHANGHAI; Editing by Simon Cameron-Moore and
Jacqueline Wong)

Source: einnews.com