A long-awaited programme opening Chinese markets up to foreign investors was launched on Monday, initiating a capital inflow of up to $250 billion.
The Bond Connect programme is a bond-trading link between Hong Kong and China, allowing foreign investors to pump money into the mainland’s domestic bond market. Beijing has been looking to attract foreign capital for years, with Ping An Asset Management estimating the scheme will bring in around $250 billion.
“For foreign investors wishing to access the Chinese market, the Bond Connect would be a more attractive option than the current practice of accessing the interbank bond market, in terms of limits in quota, convenience in trading and criteria in clearing,” said Zhang Dong, vice president of Ping An Securities, noting that he sees “an immense growth opportunity.”
China’s $9 trillion bond market is the third-largest in the world, but only 2 percent of Chinese bonds are foreign-owned. Investors are cautious about entering the Chinese market, with the instability of the Chinese currency as well as Beijing’s perceived lack of urgency to reform its financial markets creating hesitation.
The launch of the new scheme has been timed to coincide with the 20th anniversary of Hong Kong’s handover to Chinese rule. This is the latest in a series of measures designed to open up the Chinese market to foreign investment, with the US stock index provider MSCI last month agreeing to include China’s mainland domestic shares in its emerging markets index for the first time.