The People’s Bank of China will increase the allocation of national foreign exchange reserve assets in Hong Kong while expanding the Bond Connect program as part of a broader package of measures to strengthen the city’s role as an international financial center, PBOC Governor Pan Gongsheng said on Tuesday.
Speaking at the Hong Kong FIC & Bond Connect Summit, Pan said China’s foreign exchange reserves have been allocating assets and conducting investment transactions in the Hong Kong market for over a year, Securities Times reported.
Going forward, Pan said the central bank will further raise the proportion of national reserve assets invested in the city to inject fresh momentum into its capital market development.
Pan said PBOC will also expand the scale and scope of the Bond Connect southbound channel, which facilitates mainland investors to invest in bonds in Hong Kong, by raising its annual net investment quota to 800 billion yuan ($118 billion) from 500 billion yuan, broadening the range of products available under the scheme, and extending its reach to Macao’s bond market.
Noting that financial market opening and renminbi internationalization are creating fresh opportunities for Hong Kong’s financial market, Pan said that global demand for the RMB is expanding beyond trade settlement into broader areas such as investment, financing, pricing and reserve amid a faster shift of the international monetary system toward multipolarity.
Chinese bonds, he said, have become increasingly attractive to global investors thanks to their relative stability and diversification benefits, creating a “rare development opportunity” for Hong Kong’s offshore RMB bond market amid relatively low RMB financing costs.
Hong Kong is well positioned to attract more sovereign institutions and international corporates as bond issuers, he said, adding that the PBOC will continue supporting high-quality mainland companies in listing and issuing bonds in Hong Kong while further enhancing connectivity in equities, bonds, wealth management and interest rate swaps.
To enhance offshore RMB liquidity in Hong Kong, Pan said the central bank will support the Hong Kong Monetary Authority in expanding an RMB liquidity arrangement that provides low-cost, longer-term RMB liquidity for local banks to 500 billion yuan, from the current 200 billion yuan, and extending its tenor to up to three years.
He also noted that the PBOC’s newly launched renminbi repo facility for overseas central banks and official institutions (FIMA RMB Repo) has already completed its first transaction with the HKMA.
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