China opens southbound bond trading, boosting two-way opening-up

Photo taken on Sept. 24, 2021 shows the launching ceremony of the Southbound Bond Connect scheme in south China's Hong Kong. [Xinhua/Lyu Xiaowei]

BEIJING -- China officially launched the Southbound Trading channel of its Bond Connect program on Friday, which industry professionals regard as a further step for the country to liberalize its capital market and contribute to more balanced cross-border capital flows.

The transaction turnover under the Southbound Trading channel, which expands domestic investors' access to the global bond market, reached 4 billion yuan (about 619 million U.S. dollars) on the first day, said the country's central bank.

Over 40 mainland institutional investors completed over 150 transactions with 11 market makers in the Hong Kong Special Administrative Region (HKSAR), buying a wide range of bond products traded on the Hong Kong market, data from the People's Bank of China (PBOC) shows.

In July 2017, China commenced the Bond Connect scheme, opening the Northbound Trading channel to offshore investors to offer them access to the world's second-largest bond market.

To date, mainland bonds held by overseas investors via this channel amount to around 1.1 trillion yuan. The accumulated turnover of the Northbound Channel over the past four years reached 12.3 trillion yuan.

The launch of the southbound link was an improvement of the Bond Connect mechanism, making the two-way trading a closed-loop, said Guo Deqiu, a general manager with the Bank of China.

With other opening-up measures, such as the Shanghai-Hong Kong, Shenzhen-Hong Kong, and Shanghai-London stock connect programs, Guo believed China's capital market would see comprehensive, high-quality opening-up.

The bank is one of the first batches of 41 eligible banking financial institutions designated by the PBOC to participate in the trading.

Standard Chartered Bank, another qualified institution, said Friday that it completed its first foreign currency purchase transaction through the Southbound Bond Connect.

"The launch of the Southbound Bond Connect marks another remarkable milestone in the opening of China's financial markets," said Benjamin Hung, Standard Chartered's Chief Executive Officer for Asia.

He believed that the scheme will further improve the structure of China's capital markets, enhance the efficiency of the asset allocation of the country's financial markets, and promote the renminbi's internationalization.

Southbound Trading, as an important channel linking the Chinese mainland and the HKSAR to international financial markets, will further promote the connection and integration of the financial markets in the Chinese mainland and the HKSAR, said Pan Gongsheng, deputy governor of the PBOC.

It will help mainland investors to invest in the HKSAR and global financial markets and inject fresh vitality and energy into the HKSAR, Pan added.

Analysts and industry professionals believe that the connection is conducive to more balanced cross-border capital flows.

"As the Chinese economy continues to grow, we believe that the different Connect schemes will help gradually deepen and broaden the two-way capital flows moving in and out of the Chinese markets," said Benjamin Hung.

Ming Ming, an analyst with CITIC Securities, also believed that the two-way fluctuations of cross-border capital flows will be more evident under the Southbound Trading scheme.