The development of Hong Kong’s infrastructure bond market is gaining pace, driven by favorable supply-demand dynamics. The nascent market calls for continued bond issuances, greater product innovation, improved market liquidity, and cultivating talent to drive growth. Oswald Chan reports.

China’s 14th Five-Year Plan (2021-25) called for Hong Kong to develop risk management functions for its financial network, cementing the city as a full-fledged financial hub beyond initial public offerings.

With a relatively limited population and land base, the special administrative region used to have few large-scale physical infrastructure projects capable of absorbing capital. But now, supply-demand dynamics are fueling the creation of an infrastructure bond market against the backdrop of the country’s two key development blueprints — the Guangdong-Hong Kong-Macao Greater Bay Area, and the Belt and Road Initiative (BRI).

Developing infrastructure bonds

Hong Kong is betting big on linking the Northern Metropolis with the Greater Bay Area’s technology value chains, which could unlock new economic growth potential and economic diversification prospects for the city.

S&P Global Ratings sees the Northern Metropolis as the SAR’s largest ever infrastructure project yet, potentially costing HK$360 billion ($45.9 billion) over the next five to six years. The United States-based credit-rating agency estimates HK$140 billion will be contributed by government-related entities in Hong Kong over the next few years, such as Hung Shui Kiu Industry Park Co and Hong Kong-Shenzhen Innovation and Technology Park. These entities are likely to take on more debt and leverage, largely via capital markets acting as credit multipliers, it says.

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The BRI is a global infrastructure and economic development initiative unveiled in 2013, involving infrastructure projects in over 150 countries, including ports, railways, highways, power stations, aviation and telecommunications.

“The Northern Metropolis, the Greater Bay Area and the BRI together create a sustained project pipeline and financing demand, reinforcing one another and giving the government and private participants clear incentives to issue (infrastructure bonds)”, says Alvis Kong Wai-hin, Deloitte China’s strategy and economic advisory partner.

“Promoting infrastructure bonds deepens Hong Kong’s fixed-income market, which has historically trailed the equity market, supporting the city’s evolution toward a more balanced equity-and-debt financial center and aligning directly with the policy goal of strengthening Hong Kong’s role as a global risk-management hub,” he tells China Daily.

Professor Zhang Yifei of the HKU Business School says the SAR’s financial market can transform illiquid project risks originating from BRI projects into some kind of financial assets that can be tradable, while Chinese mainland companies can rely on Hong Kong’s gateway position in the Greater Bay Area to issue offshore infrastructure bonds to serve renminbi internationalization and project financing.

On the demand side, Hong Kong, crowned recently as the world’s largest cross-border wealth management hub, clearly sees the potential of developing an infrastructure bond market.

With catastrophe and infrastructure bonds, this would open up more investment opportunities of different asset classes, qualifying Hong Kong as a genuine cross-border wealth-management pivot.

Institutional investors need infrastructure bonds with stable returns as an asset diversifier while the growing presence of institutional investors in Hong Kong, such as family offices, can offer a long-term capital source to Hong Kong-issued infrastructure bonds.

The concept of infrastructure bonds and infrastructure debts should be distinguished here. The former refers to the public listing of bonds related to infrastructure projects, while the latter covers a wider spectrum of privately held infrastructure assets like syndicated bank loans, private equity and private credit.

Infrastructure bonds become a favorable asset class for global institutional investors because of their built-in inflation-hedging nature, stable cash flow, and low default risk. They can be issued in various currencies with different maturities that can cater to investors’ allocation diversification needs.

Responding to market demand and project pipelines, Hong Kong is ramping up in infrastructure bond issuances. In the 2026-27 Budget, the SAR government said it will issue up to HK$220 billion worth of green and infrastructure bonds annually from 2026 to 2031, and more long-term bonds will be issued in the future to align more closely with the cash flow duration to meet project requirements.

In May, the government successfully priced about HK$27.6 billion worth of green and infrastructure bonds across multiple currencies in Hong Kong dollars, renminbi, US dollars and euros. Since setting up the infrastructure bond program in 2024, the administration had issued infrastructure bonds totaling around HK$105.2 billion equivalent as of March 2025.

Zhang says he believes an infrastructure bond market would back Hong Kong’s aspiration to be a world comprehensive risk-management hub. “This asset class (infrastructure bond) ties the whole risk center together. Catastrophe bonds move disaster risks off balance sheets, captives centralize corporate risks, and infrastructure bonds fund the physical resilience itself at a center that could price and fund 30-year risks across currencies,” he says.

Even the supply-demand dynamics is working in Hong Kong’s favor, the city’s infrastructure bond market may still be in its infancy, characterized by limited long-tenor bond supply, thinner secondary-market liquidity, overreliance on institutional investors, and inadequate talents specializing in infrastructure bond issuances. Thus, Hong Kong must commit itself to continuing bond issuances and securitization, driving product innovation, expanding market liquidity and investor base, and propelling interdisciplinary talent development, analysts say.

Amid the Northern Metropolis’ projected financing needs, the SAR should leverage this opportunity to issue long-term infrastructure bonds continuously. “Launching 30-year infrastructure bonds will help build a long-term Hong Kong bond market yield curve that is essential for developing the bond market. Asset managers like insurers and patient capital need a long-term bond market yield curve to match assets and liabilities”, says Rocky Tung Yat-ngok, executive director of the Financial Services Development Council — the SAR government’s high-level advisory body for the financial services sector. He says he expects global investors to have a strong appetite for Hong Kong-issued infrastructure bonds because of the government’s strong credit rating.

Boosting market liquidity

Besides issuing bonds, securitization is another market development strategy. The Hong Kong Mortgage Corp, wholly owned by the SAR government, started its infrastructure financing and securitization business in 2019 by strengthening collaboration with financial institutions to broaden the investor base and capital market opportunities.

From 2023 to 2025, the corporation had issued three batches of infrastructure loan-backed securities — an asset class that provides investors exposure to a diversified portfolio of infrastructure loans across multiple geographies and sectors through the securitization of such loans.

Zhang says the next step is for Hong Kong to make securitization and guarantees routine rather than a one-off exercise. “Most Asian infrastructure financing still lives on bank balance sheets. The assets exist, but they never get converted into something investors can actually buy. And, we lack the machinery to turn messy project loans into standardized paper that insurers and pension funds are permitted to hold.”

Effie Xin Yi, chief operating officer and financial services managing partner at EY Greater China, says “As Hong Kong currently lacks government-backed credit enhancement mechanisms comparable to the mainland’s regarding infrastructure risk compensation pools, Hong Kong could consider introducing financing guarantee instruments tailored to its legal and regulatory environment, such as dedicated guarantee schemes or specialized funds.”

With different systems in place between Hong Kong and the mainland in infrastructure financing regulations, land acquisition and development practices, and financing structures, the second strategy of developing the infrastructure bond market is to drive regulatory and policy harmonization, such as facilitating the alignment and mutual recognition of disclosure standards and credit rating systems with the mainland.

“Both sides should cooperate in promoting mutual recognition of regulatory frameworks, credit rating methodologies, disclosure requirements, dispute resolution mechanisms, and other relevant standards across the two jurisdictions, thus facilitating smoother capital flows and improving project financing efficiency,” Xin says.

Kong stresses the importance of refining the legal framework of public-private partnerships and build-operate-transfer arrangements as he expects special purpose vehicles like Hung Shui Kiu Industry Park Co and San Tin Technopole Co to be further empowered to issue project bonds directly.

Expanding the investor base and boosting market liquidity is another market development recipe. The government aims to get insurers to participate in infrastructure bond investments.

The Insurance Authority in May published the consultation conclusions on the amendments to the Insurance (Valuation and Capital) Rules (Cap 41R) relating to the risk-based capital regime that aims to incentivize insurance companies to make infrastructure investments to support local economic development and beef up Hong Kong’s competitiveness as an international risk-management hub, while maintaining appropriate prudential safeguards.

Preferential capital treatment will be provided to insurers for holding eligible infrastructure investments with assets on the mainland or in Hong Kong, and for those located elsewhere but issued or listed in Hong Kong. There will also be additional capital incentives for holding Hong Kong-dollar-denominated infrastructure bonds issued by the SAR government. The amendment rules will be implemented on Dec 31.

Insurance companies are among the capital sources and managers of financial assets. With more infrastructure bond issuances, this will facilitate insurers’ decisions in assets-liabilities matching and capital deployment, Tung says.

Zhang says, “When local capital rule pushes insurers to hold this paper, foreign money tends to follow that conviction.”

Kong tells China Daily: “The changes recognize the asset-liability matching benefits of long-duration bonds, and refine the scope of eligible investments, thus lowering the capital cost for insurers allocating to infrastructure debts.”

In his view, other enhancing secondary-market liquidity and investor base measures include enlarging retail access by issuing infrastructure-bond exchange-traded funds or index products to lower entry barriers, and promoting infrastructure bonds to Middle Eastern and Southeast Asian sovereign and pension investors.

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Xin proposes offering tax incentives for offshore investors to purchase designated infrastructure bonds, introducing a market-making regime, and expanding the Bond Connect program to allow more mainland institutional investors to subscribe to infrastructure bonds issued in Hong Kong.

But creating an infrastructure bond market in Hong Kong is hindered by a structural shortage of multidisciplinary professionals who are proficient in bond issuance processes and infrastructure project valuation.

Xin calls for Hong Kong to deepen industry-academia-research collaboration to tackle the talent-gap issue. “While Hong Kong universities should provide academic courses in fixed-income product pricing and infrastructure financing, local regulators, universities, banks, investors and project developers must collaborate to provide practical hands-on training to strengthen the talent pipeline.”

Another course of action will be for Hong Kong to make full use of initiatives like the Top Talent Pass Scheme to attract infrastructure expertise from the World Bank and the Asian Infrastructure Investment Bank to the city, Xin says.

Contact the writer at oswald@chinadailyhk.com