(Yicai Global) July 3 -- The Chinese government will decide when to launch 'southbound' trading under the Chinese mainland-Hong Kong Bond Market Connect program depending on the development of the northbound link that allows foreign investors to trade in mainland bonds via Hong Kong and market demand, said Pan Gongsheng, vice governor of the People's Bank of China (PBOC), at the inaugural ceremony of the Bond Connect program today, adding that the time of launching southbound trade has not yet been determined.
Southbound trading will come when market demand is big enough to justify it, said Charles Li, chief executive of Hong Kong Exchanges & Clearing Ltd. There will be more 'Connect' initiatives in future. Only northbound trading has been launched so far because the demand for mainland Chinese bonds is much greater than that for Hong Kong-listed ones. The southbound version will come when there is substantial demand.
A growing number of foreign investors now want to invest in yuan-denominated assets, Pan noted, and Bond Connect program serves as a bridge and a vehicle, and plays an important role in this respect. The fact that Hong Kong is chosen as the market for launching the program indicates that the central government is totally confident in the city's potential as a financial center, he stressed. PBOC will deepen cooperation with Hong Kong to further develop the international center for the yuan and interconnection of financial market infrastructure, he added.
Hong Kong has clear advantages in terms of financing and human resources, and plays a prominent role in pushing forward the 'One Belt, One Road' initiative, Pan said. Many global investors are keen to issue yuan-denominated bonds and to enter the Chinese bond market, he opined. As the Chinese economy continues to growth steadily, and the yuan becomes increasingly internationalized through, for example, Bond Connect and bond market infrastructure initiatives, more investors will be attracted to the mainland's bond market.
Bond Connect program is divided into two parts – 'northbound' trading that allows foreign investors to buy mainland listed bonds via the Hong Kong bond market, and southbound trading whereby Chinese investors can by foreign bonds listed in Hong Kong through the mainland bond market.
The northbound link is launched today as scheduled by PBOC and Hong Kong Monetary Authority. The regulators have not yet decided on when to launch the southbound link.