The combined market size of exchange-traded bonds in China and Hong Kong has grown to match the world’s largest markets in terms of number of bonds, bond issuance amount and turnover, according to a research report published by HKEX Chief China Economist’s Office. Key drivers for the growth of this market include policy incentives and institutional enhancements, as well as rising financing demand from the real economy. 

The two on-exchange bond markets in China and Hong Kong have their own characteristics that can be complementary to each other and bring mutual benefits.

The Mainland bond market is comprised mainly of the China Interbank Bond Market (CIBM) and the on-exchange market. China’s government and corporate sectors are increasingly using bonds to raise funds. Bond financing in the domestic market is supported by central policies and facilitated by the March 2020 implementation of the registration-based issuance regime for corporate and enterprise bonds. Compared to the CIBM, the on-exchange bond market focuses more on serving non-financial corporates, offering direct financing to support the real economy. The investor base of the on-exchange bond market is more diversified, compared with the dominance of banks in the CIBM. 

Hong Kong has been the largest offshore bond financing centre for Mainland companies (see our report “Hong Kong’s role in supporting the fund-raising of Mainland private enterprises”, 13 June 2019). While foreign participation in the issuance and trading of bonds on the Mainland exchanges is still restricted, Hong Kong’s on-exchange bond market is open to global issuers and investors. Listed bonds in Hong Kong can be issued and traded in multiple currencies while bonds in the Mainland market are rarely issued in foreign currencies. The on-exchange bond markets in both the Mainland and Hong Kong offer plain vanilla bonds, convertible bonds and asset-backed securities. Standardised bond repurchase instruments are also available on Mainland exchanges. Given the different characteristics in terms of issuer base, investor base and product types, the on-exchange bond markets in Hong Kong and the Mainland can be complementary to each other in their further development. 

Given the success of the Stock Connect and Northbound Bond Connect schemes under the Mainland-Hong Kong Mutual Market Access (MMA) programme, both the Hong Kong and Mainland on-exchange bond markets could benefit if the MMA programme is extended to cover the issuance and trading of on-exchange bonds. Benefits would include more diverse issuer and investor bases as well as the availability of a greater variety of product types in both markets, bringing about an increase in market liquidity. This would serve the needs of global and Mainland issuers and investors. In its 2019-2020 annual report, the Securities and Futures Commission (SFC) stated that, following on the success of the Stock Connect scheme, it “will work towards introducing other Connect programmes beginning with a new initiative for the cross-border trading of listed bonds”. The comprehensive internationalisation of the Mainland on-exchange bond market could facilitate the process of RMB internationalisation, generating more development opportunities for both Mainland and Hong Kong markets.