What is a Bond Circular?

The concept of Bond Connect was introduced in January 2016. On April 11, 2017, Premier Li Keqiang said in a meeting with the newly-appointed Chief Executive of the Hong Kong Special Administrative Region Lin Zhengyue that in 2017, the central government will study and formulate the development plan for the Guangdong-Hong Kong-Macao Greater Bay Area and will launch a "bond link" between the Mainland and Hong Kong The purpose is to further strengthen the exchanges and cooperation between the Mainland and Hong Kong, and continue to inject new momentum into Hong Kong's development. ^[1]

Bond Connect

The concept of Bond Connect was introduced in January 2016. The Hong Kong Stock Exchange has incorporated Bond Connect into its strategic plan from 2016 to 2018, and has made it an important part of its future interconnection strategy. ^[1]

"Northbound" refers to the institutional arrangement for overseas investors to invest in the mainland interbank bond market through the interconnection of the Mainland and Hong Kong bond market infrastructure. "Northbound" foreign investors' investment bonds are all bonds that can be traded in the inter-bank bond market. The investment method can be either through subscription in the inter-bank bond market or through secondary market trading ^[3] .

The opening of China's bond market has its special significance and trajectory. In recent years, financial reforms in the Mainland have continued to advance, and the importance of the bond market as a platform for multi-level market-oriented allocation of financial resources has become apparent. Shen Jianguang, chief economist at Mizuho Securities Asia, said that because Bond Connect transactions will be conducted through Hong Kong settlement accounts, it will make it easier for investors to realize cross-border investment funds. The transaction and settlement of the Bond Connect program are carried out through the Hong Kong Monetary Authority's Central Money Markets Unit (CMU). The Bond Connect will greatly benefit the Hong Kong market and promote the opening of mainland capital projects and the global allocation of risk preferences ^{[ 3]} .

In recent years, as QFII (Qualified Foreign Investor), RQFII (Renminbi Qualified Foreign Investor) and the interbank bond market qualified institutions plan and other channels continue to open up the scope and quota of access, it has flowed into the international Capital has been rising and the inclusion of the renminbi in the IMF's SDR currency basket means that the renminbi is formally recognized as part of the international financial system. As one of the important measures for China's bond market to open to the outside world, the launch of Bond Connect will undoubtedly promote capital inflows, enhance currency functions, and improve the credit environment ^[3] .