The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China have launched a cross-boundary bond repurchase (repo) scheme, aiming to enhance the Bond Connect scheme and attract more international investors to trade in yuan-denominated mainland bonds. The scheme allows overseas institutional investors to participate in the onshore repo business and remit yuan obtained for offshore use. This move is expected to increase offshore yuan liquidity in Hong Kong, boost overseas investors’ interest in allocating yuan assets, and promote the development of offshore yuan businesses.
HSBC and Standard Chartered, two of Hong Kong’s note-issuing banks, have successfully completed trades under the new scheme. HSBC has already completed transactions with onshore financial institutions to obtain yuan funding via the repo scheme. The transactions demonstrate investors’ growing confidence in China’s capital market liberalization and reinforce Hong Kong’s position as the leading offshore yuan hub.
The Bond Connect scheme, launched in 2017, allows international investors to trade in mainland China’s bond market. The new cross-border repo scheme is seen as a significant development, as it provides investors with more flexible and efficient ways to manage their yuan-denominated bond holdings. Chinese bonds are attractive to investors due to their diversification benefits and relative stability.
According to HKMA chief executive Eddie Yue Wai-man, the new scheme will bolster offshore yuan liquidity in Hong Kong and increase overseas investors’ interest in allocating yuan assets. The launch of the cross-border repo scheme is a positive development for Hong Kong’s financial market, solidifying its position as a major offshore yuan hub. The scheme is expected to attract more international investors to trade in yuan-denominated bonds, further integrating China’s bond market into the global financial system. Overall, the new scheme is a significant step forward in promoting the development of offshore yuan businesses and enhancing the Bond Connect scheme.