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Published: 16:02, September 23, 2022
Global rate hike cycle 'to boost offshore dim sum bonds'
By Oswald Chan
Published:16:02, September 23, 2022 By Oswald Chan

Christopher Hui Ching-yu, secretary for financial services and the treasury. (PHOTO PROVIDED TO CHINA DAILY)

Dim sum bond issuances will get a boost when major global economies enter an interest-rate hike cycle that will slash the issuance cost, financial regulators from Hong Kong and the Chinese mainland said on Friday.

The remarks came at a seminar jointly hosted by the Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region, and the Guangdong Provincial Development and Reform Commission. The event was held to study how to leverage bond financing to support the development of the Guangdong-Hong Kong-Macao Greater Bay Area.

Recently, there has been an increasing trend for investors to purchase Hong Kong-issued bonds through the Southbound Bond Connect due to the spread of the onshore and offshore renminbi.

Christopher Hui Ching-yu, secretary for financial services and the treasury

“Recently, there has been an increasing trend for investors to purchase Hong Kong-issued bonds through the Southbound Bond Connect due to the spread of the onshore and offshore renminbi,” Secretary for Financial Services and the Treasury Christopher Hui Ching-yu said at the seminar.

“With incremental liquidity on the mainland, and the interest rate market interaction between Hong Kong and the mainland, it will boost the development of the dim sum bond market. In the first eight months of this year, the value of dim sum bond issuances has reached a record high,” Hui said.

The rise of incremental liquidity on the mainland will also further bolster the growth of the offshore yuan liquidity pool in Hong Kong, which will propel a virtuous cycle of yuan internationalization, he said.

The financial services chief highlighted the SAR government will solicit support from the mainland to formulate a dedicated policy regarding the issuance of offshore yuan bonds in Hong Kong. The policy will cover the areas of product category, and the pilot arrangement of formulating a quota system.

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Hui said that the SAR government has provided profits tax exemption for interest payments and recorded profits made by Shenzhen municipal government related to its 5 billion yuan (US$713 million) bond issuance in October 2021, the first bond issuance in Hong Kong by a municipal government on the mainland.

“Looking forward, we will mull extending profits tax exemption to other debt securities issued in Hong Kong by other municipal governments on the mainland,” Hui said.

The Chinese mainland will be the major economic growth engine in the next 10 years. Therefore, even a small fraction of bond issuances by mainland enterprises in Hong Kong will drive the exponential growth of the city’s bond market, Hui said.

Lin Qiaoji, chief of the Guangdong Provincial Development and Reform Commission, said “as the United States Federal Reserve raised interest rates consecutively, it makes bond issuances in renminbi become a more cost-effective financing option compared to the US dollar.”

READ MORE: HKMA raises base rate to 3.5% after Fed hike

“The oversubscription toward central bank bill issuance in Hong Kong by the People’s Bank of China reflects the market demand for renminbi assets. The effective control of the COVID-19 pandemic on the mainland and mainland economic resiliency elevated the long-term value of asset allocation to renminbi assets,” Lin said.

As mainland authorities will simplify the approval process of dim sum bond issuances and relax the restrictions regarding capital deployment, it will inject a new impetus for the dim sum bond market development, he said.


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