(Writes through, adds details and HKMA comments)
HONG KONG/SHANGHAI, Sept 15 (Reuters) - China will make it
easier for its investors to trade offshore debt from next week
with the opening of a "Southbound" leg of its Bond Connect
channel, in the country's latest move to encourage more outbound
In a joint statement on Wednesday, China's central bank and
the Hong Kong Monetary Authority said the Southbound Bond
Connect channel would launch on Sept. 24, more than four years
after the Northbound leg expanded foreign investors' access to
China's bond market, the world's second-largest.
The People's Bank of China said that 41 mainland banks, as
well as participants in China's Qualified Domestic Institutional
Investor (QDII) and Renminbi QDII schemes, would participate in
the new arrangement.
The scheme will feature an initial daily quota of 20 billion
yuan ($3.11 billion), and an annual quota of 500 billion yuan.
No quotas apply to trades through the Northbound leg.
"Connect schemes were not built in one day. We expect to see
southbound trading develop in a gradual manner with proper risk
management practices in place," Hong Kong Monetary Authority
Chief Executive Eddie Yue told a news briefing.
In a separate announcement on Wednesday, the China Foreign
Exchange Trade System said that it would publish a list of
specific bonds eligible for trade through the programme and
update it according to market conditions and investors' needs.
Edmond Lau, the HKMA's deputy chief, told the briefing that
all bonds traded in Hong Kong regardless of currency could be
included in the scheme.
The announcement of Southbound Bond Connect comes less than
a week after China kicked off a new Wealth Management Connect
programme linking the southern province of Guangdong with Hong
Kong and Macau.
The introduction of Wealth Connect and Southbound Bond
Connect "signals that China is less worried about portfolio
outflows as the country forges ahead with deeper financial
penetration," Carlos Casanova, senior economist for Asia at
Union Bancaire Privee, said in a note.
But while the two schemes would likely encourage more
cross-border flows and lead to great integration of the "Greater
Bay" area linking Hong Kong, Guangdong and Macau, "the market
reaction should prove to be limited initially given limited
coverage," said Ken Cheung, chief Asian FX Strategist at Mizuho
in Hong Kong.
The Northbound Bond Connect, launched in July 2017, has
become a major channel for foreign investors seeking access to
China's bond market.
Average daily turnover through Bond Connect reached 26.3
billion yuan ($4.09 billion) in August, up 35% from a year
earlier, according to Bond Connect Co. Ltd, a joint venture
between HKEX and the China Foreign Exchange Trade System that
operates the programme.
($1 = 6.4319 Chinese yuan)
($1 = 6.4319 Chinese yuan renminbi)
(Reporting by Andrew Galbraith and the Beijing Newsroom;
Editing by Andrew Heavens and Kim Coghill)