Feature: HK Strives for Stronger Int'l Bond Market

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Last updated at: (Beijing Time) Tuesday, November 20, 2001

Feature: HK Strives for Stronger Int'l Bond Market

Hong Kong is striving to build a stronger international bond market to meet future challenges by focusing on good bilateral linkages and financial infrastructure, financial experts said Monday in Hong Kong.

To achieve the goal, Hong Kong is also ready to play its part in the development of the Renminbi bond market in the mainland, Joseph Yam, chief executive of Hong Kong Monetary Authority, told a forum on China's securities market in Hong Kong.

"Our present pre-occupation in the development of the Hong Kong bond market is to bring in the international dimension. As an international financial center, we of course aspire to play a role in international financial intermediation," Yam noted.

In Hong Kong, an exchange fund bills and notes program was introduced at the beginning of 1990, and a comprehensive approach was adopted to the task. In 1991, Hong Kong's bond market has a size of only about 4 percent of its GDP. This has grown to 35 percent last year, and the share of the private sector debt is now at around 77 percent.

Yam urged that efforts should be concentrated on the establishment of bilateral linkages of the appropriate elements of Hong Kong's financial infrastructure with those of other jurisdictions wherever it is compatible to do so, and whenever the counterparts are willing.

"This basically is for the purpose of facilitating the cross border investments in debt securities," he stressed.

Economists here also believed that the replication of Hong Kong dollar financial infrastructure for the U.S. dollar, the popular currency for international financial intermediation, is of great importance for an international bond market.

Participants to the forum stressed that members of Hong Kong financial community should be able to leverage on this position of strength and bring issuers and investors of U.S. dollar bonds to Hong Kong. "Further development of the bond market is largely in their hands," they agreed.

Yam also said that he was, in particular, thinking of the Renminbi financial infrastructure, which requires urgent strengthening, not just for facilitating the development of the Renminbi bond market, but also for facilitating the many further measures in financial liberalization following WTO accession.

Meanwhile, he said, the U.S. dollar financial infrastructure in Hong Kong, coupled with the market making arrangements that have been well tried for over a decade, and the critical mass of financial institutions, is ideal for the launching of a U.S. dollar bond program for the mainland.

With foreign reserves well exceeding 200 billion U.S. dollars, Yam said there is arguably little need for the mainland to raise additional foreign debt. But part of the outstanding foreign debt could be refinanced in Hong Kong through such a program, he added.

Analysts on finance here also believed this seems worth trying, for the downside risks are minimal and the benefits could be substantial, to the mainland in terms of potential savings in borrowing and road show costs, and to Hong Kong, in terms of consolidating its position as the regional bond center.

Yam said Hong Kong is ready to play its part in the development of the Renminbi bond market in the mainland, starting slowly with the establishment of joint ventures for underwriting and trading, and the development of Renminbi bond funds and so on.

"But what we hope for is that, in the fullness of time, the mainland can come around to accommodating full access to the Renminbi bond market from Hong Kong," he added.

"I am sure there will be demand for Renminbi assets in Hong Kong, if the demand is not there already," he said. This matter, and other issues concerning financial intermediation of the Renminbi outside of the mainland, raises complicated issues of capital account controls that need to be resolved cautiously, he told the forum.

With increasing economic integration between Hong Kong and the southern part of the mainland, some, possibly an increasing degree of, mobility of capital between the two economies is inevitable.

The choice is whether to channel properly this flow of capital openly and, if considered desirable, in a controlled manner, and to monitor it, or to leave it in the dark, when ironically it is performing the useful role in promoting the efficient use of capital in the two economies, experts also believed.

"There is a great deal that the free and open financial markets of Hong Kong can offer in Renminbi financial intermediation," Yam said in conclusion.

Hong Kong Saw Fast Development in Bond Market