4 July, 2017
On 2 July 2017, the People's Bank of China and the Hong Kong Monetary Authority announced the official launch of “Bond Connect”, a mutual access scheme between the bond markets in Hong Kong and the Mainland, starting on 3 July. King & Wood Mallesons (KWM) acted as legal advisers to China Foreign Exchange Trade System & National Interbank Funding Centre (CFETS).
Bond Connect is a major achievement in the opening up of China's inter-bank bond market. It also highlights the efforts of China’s central government to promote closer cooperation between the Mainland and Hong Kong and to broaden foreign investment channels through the continued opening up of China's financial markets. Bond Connect is also an attempt to promote market demand for RMB as an international reserve currency, and speed up the internationalization of RMB.
The concept of Bond Connect was initially put forward in January 2016 following the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. The Hong Kong Stock Exchange (HKEx) has incorporated Bond Connect into its strategic planning for 2016-2018 and regards it as an important part of its mutual access strategies for the future. On 1 March 2017, HKEx disclosed the road map of "Starting with northbound trading and then southbound" for the first time.
On 15 March, Premier Li Keqiang announced the pilot launch of Bond Connect. Beginning with northbound trading (through Hong Kong and the Mainland infrastructure agencies), offshore investors from Hong Kong and other countries may have direct access to the mainland inter-bank bond market, custody, settlement and other aspects of the interconnection scheme. Without changing their existing trading habits, international investors can have fast track and direct access to the China interbank bond market.
Southbound trading will be explored at a later stage. Through the infrastructure agencies under the interconnection scheme, this would be a way for Chinese domestic investors to access the Hong Kong bond market.
Teams from KWM PRC and Hong Kong worked together on the Bond Connect project, assisting CFETS on its cooperation with HKEx and overseas electronic trading platform over Bond Connect. The KWM cross-border team was led by partner Jack Wang and Molly Su in our Shanghai office and Richard Mazzochi, Hayden Flinn and Minny Siu from our Hong Kong office.
Jack Wang commented, “On the 20th anniversary of the reunification of Hong Kong, KWM was honoured to assist with the milestone launch of Bond Connect. With the development of China's economy, we’ve witnessed several epoch-making achievements of China's financial and capital markets, and we are proud to have participated and contributed our professional services. Leveraging our local roots and global platform, we always focus on the future and being at the forefront of the industry.”
