(Yicai) July 8 -- The People's Bank of China has launched a series of supportive measures to assist Hong Kong in building a diversified financial market system, including increasing the investment quota for the Southbound Bond Connect mechanism and enhancing offshore Chinese yuan liquidity.

The annual net investment quota for the Southbound Bond Connect mechanism will be raised to CNY800 billion from CNY500 billion (USD 117.7 billion from USD73.6 billion), Pan Gongsheng, governor of China's central bank, announced at the Hong Kong Fixed Income and Currency & Bond Connect Summit yesterday.

In addition, the bonds will be considered eligible collateral, with the scope of investment targets expanded from the previously available offshore yuan, euro, and US dollar-denominated bonds to include Hong Kong dollar-denominated bonds and certain products related to Hong Kong dollar and yuan-denominated bonds, Pan said, adding the existing connectivity mechanisms will also be used to further extend the investment scope to the Macao bond market.

The Southbound Bond Connect is an important channel for Chinese investors to invest in the Hong Kong bond market, relying on the connectivity mechanism between the financial infrastructures of the mainland and Hong Kong. Launched in September 2021, it provides a convenient bridge for mainland institutions to access the Hong Kong and global bond markets.

Hong Kong is the largest offshore yuan business center in the world. In recent years, the PBOC has coordinated the functions of yuan clearing banks, currency swap arrangements, and other mechanisms to provide stable yuan liquidity support for the offshore market in the city.

The PBOC will support the Hong Kong Monetary Authority in increasing the scale of yuan funding arrangements to CNY500 billion from CNY200 billion and extending the usage period to no more than three years to enhance the liquidity of the local yuan market, Pan noted.

Leveraging the yuan stable swap funding support established by the PBOC and the HKMA, the yuan funding arrangement mechanism of the HKMA provides commercial banks in Hong Kong with stable and low-cost medium to long-term yuan funding. The mechanism's total amount was doubled to CNY200 billion in early February.

There is a wide variety of investable yuan products available in Hong Kong, encompassing major asset classes, including stocks, bonds, repos, and derivatives, Pan stressed. The PBOC supports the city in building a deeper yuan asset pool to promote the settlement of the redback in the Hong Kong offshore market, he added.

The PBOC will continue to regularly issue central bank bills in Hong Kong and support the Ministry of Finance in increasing the issuance scale of offshore yuan treasury bonds, diversifying maturity terms, and enhancing the influence of the city's offshore yuan market, Pan pointed out.

As the international monetary system accelerates towards a multipolar direction, global demand for the yuan is extending beyond trade settlement to investment, financing, pricing, reserves, and other areas, Pan said. As an important testing ground for China's outward opening strategy, Hong Kong will further enhance its position as a gateway for overseas investment into the mainland market and a global hub for offshore yuan business, he noted.

Editors: Tang Shihua, Martin Kadiev