China expands Bond Connect by allowing more players to join banks in offshore market

Securities firms, fund managers, insurers and wealth management companies would be allowed to invest in offshore bonds through the southbound channel of the scheme from Tuesday, according to authorities in Beijing and Hong Kong. Only banks and qualified institutional investors were approved when the channel was introduced in 2021, four years after the Bond Connect kicked off in July 2017.

The move would open up more channels to meet the growing demand from mainland investors and address their need to diversify their asset allocations, said Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority (HKMA), at a conference on Tueaday.

“It will also bolster the development of Hong Kong’s bond market by widening the investor base and enhancing market liquidity, hence increasing Hong Kong’s attractiveness to both bond issuers and global investors,” he added.

The enhancements came amid growing demand for diversification as global trade tensions escalated and a surge in household savings helped Chinese financial institutions accumulate wealth at a faster clip since the end of the Covid-19 pandemic. The daily net outflow remains capped at 20 billion yuan (US$2.8 billion), or up to 500 billion yuan per year. No changes to the limits were announced despite market speculation.

The People’s Bank of China (PBOC) would enhance the opening of its financial markets, deepen cooperation with Hong Kong and ensure its prosperity as an international financial centre, said Jiang Huifen, deputy director general of the central bank’s financial market department, in a video address.