On September 15, the People’s Bank of China and the Hong Kong Monetary Authority issued a joint announcement stating that the Bond Connect “Southbound Link” will be launched on September 24, 2021.
The so-called “Southbound Link” of Bond Connect refers to the “Southbound Link” refers to mainland institutional investors connecting the mainland with Hong Kong’s basic service institutions to invest in Hong Kong bonds The institutional arrangements of the market. According to the central bank, at present, the annual total quota of “Southbound Link” is 500 billion yuan equivalent, and the daily quota is 20 billion yuan equivalent. The People’s Bank of China adjusts the annual total quota and daily quota of “Southbound Link” in accordance with the situation of cross-border capital flows.
The above-mentioned joint announcement stated that “Southbound Link” is another important measure of the central government to support the development of Hong Kong and promote cooperation between the mainland and Hong Kong, which is beneficial to mainland institutional investors. Having more investment channels is conducive to steadily promoting the two-way opening of my country’s financial market, and is conducive to supporting Hong Kong in enhancing its competitive advantage, consolidating its status as an international financial center, and maintaining long-term prosperity and stability.
The announcement stated that the “Southbound Link” complies with the relevant laws and regulations of the mainland and Hong Kong bond markets, abides by the current Hong Kong bond market policy framework, and does not change the “going out” of mainland institutional investors. “Policy arrangements for investing in Hong Kong and the global bond market. The specific rules of “Southbound Link” will be formulated separately.
The announcement pointed out that the mainland and Hong Kong bond market regulators will each take all necessary measures to ensure that both parties have established a “Southbound Link” for the purpose of protecting the legitimate rights and interests of investors. Effective mechanisms to deal with violations of laws and regulations in a timely manner. The Mainland and Hong Kong bond market regulators have improved the memorandum of supervisory cooperation, improved supervisory cooperation arrangements and liaison and consultation mechanisms, and maintained financial market stability and fair transaction order. Mainland and Hong Kong basic service institutions should follow the principles of stability, order and risk control, and provide basic services for all parties in the market to participate in the “Southbound Link” in accordance with laws and regulations, and assist Mainland institutional investors to fully understand the laws, regulations and business rules of the Hong Kong bond market , Carefully assess investment risks and prepare for entry into the Hong Kong bond market.
Attachment: “Notice on the Development of Southbound Cooperation in the Interconnection of Bond Markets between the Mainland and Hong Kong” to answer reporters’ questions
September 15, 2021, The People’s Bank of China issued the “Notice on the Development of Southbound Cooperation in the Interconnection of Bond Markets between the Mainland and Hong Kong” (hereinafter referred to as the “Notice”). The relevant person in charge of the People’s Bank of China answered reporters’ questions on related issues.
One, “Northbound Link” has been online for four years, how is it operating?
In July 2017, in accordance with the deployment of the central government, the People’s Bank of China, together with the Hong Kong Monetary Authority, worked with all parties to launch the “Northbound Link”.
Before the opening of the “Northbound Link”, foreign investors held approximately 850 billion yuan in Chinese bonds. So far, this scale has reached 3.8 trillion yuan, with an average annual growth rate of more than 40%. Among them, “Northbound” foreign investors hold about 1.1 trillion yuan in debt, and the cumulative trading volume in the past four years is 12.3 trillion yuan. 78 of the world’s top 100 asset management institutions have participated.
Practice has proved that the “Northbound Link” operates smoothly and efficiently, and has become an important channel for foreign institutions to enter the market. Transactions are becoming more active, the supervision cooperation between the two places is smooth, and the response from all parties in the society is good. . In particular, the “Northbound Link” not only pays attention to adopting multi-level custody and other internationally accepted practices to effectively facilitate the “one-point access” of foreign institutions, but also fully considers my country’s national conditions and adopts a series of arrangements such as penetrating information collection to effectively support supervision and risk. Guard against.
2. What are the main considerations for the current launch of “Southbound Link”?
General Secretary Xi Jinping has repeatedly emphasized the need to implement financial reform and opening up tasks, and study and promote new reforms and opening up in accordance with changes in the international economic and financial development situation and the needs of my country’s development strategy. Measures to expand the high-level two-way opening of finance.
In 2017, considering all factors, the “Southbound Link” was not opened simultaneously with the “Northbound Link”. In the past four years, the People’s Bank of China has always been concerned about the development of the Hong Kong bond market, has maintained close communication with the Hong Kong Monetary Authority, and has jointly actively studied the feasible scheme of “Southbound Link”.
According to the central decision and deployment, the “Southbound Link” will be opened at the appropriate time. The financial market has room for asset allocation; second, it is conducive to consolidating Hong Kong’s position as a bridgehead and hub connecting the Mainland and the world market, helping Hong Kong integrate into the overall development of the country, and maintaining Hong Kong’s long-term prosperity and stability.
Third, what is the overall operating framework of “Southbound Link”?
Currently, mainland financial institutions can independently “go out” to allocate global bonds. “Southbound”Tong” did not break through the current policy framework between the Mainland and Hong Kong. It was mainly through strengthening the cooperation of basic service institutions in the bond markets of the two places to provide a convenient channel for mainland institutional investors to “go global” to allocate bonds. Bonds issued overseas and traded in the Hong Kong market. At the initial stage, “Southbound Link” first opened cash bond trading.
Same as “Northbound Link”, “Southbound Link” “Xiangtong” also adopts the international notional holder system arrangement. Mainland bond registration and settlement institutions and custodian clearing banks provide bond custody and settlement services for mainland investors by opening notional holder accounts in Hong Kong.
4. Who are the institutions participating in the “Nanxiangtong” at this stage?
Mainland investors are tentatively designated as China 41 banking financial institutions (excluding non-bank financial institutions and rural financial institutions) among the primary dealers of the People’s Bank of China in 2020. Qualified Domestic Institutional Investors (QDII) and Renminbi Qualified Domestic Institutional Investors (RQDII) ) It is also possible to carry out overseas bond investment through the “Southbound Link”. The counterparty is tentatively designated as the “Southbound Link” market maker designated by the Hong Kong Monetary Authority.
Institutions that provide basic services such as bond registration, depository, custody, trading, settlement, and clearing for the “Southbound Link” include related financial infrastructure and custodian clearing banks in the two places. Among them, the financial infrastructure includes the China Foreign Exchange Trading Center (National Interbank Funding Center), China Government Securities Depository Trust and Clearing Co., Ltd., Interbank Market Clearing Co., Ltd., Cross-border Interbank Payment and Settlement Co., Ltd., Hong Kong Exchanges and Clearing Co., Ltd., Hong Kong Monetary Authority Debt Instrument Central Settlement System , The first batch of domestic custodial clearing banks are Industrial and Commercial Bank of China, Bank of China and China CITIC Bank.
5. How does “Nanxiangtong” manage the risk of cross-border capital flow?
“Southbound Link” realizes closed-loop management of funds through the design of transactions, custody, settlement, remittance and other links, and strengthens the penetrating style through transaction custody data reporting and other methods Supervision and monitoring.
In terms of quota management, according to the “Notice”, the upper limit of the net outflow of “Nanxiangtong” cross-border funds does not exceed the annual total quota and daily quota. At present, the annual total quota of “Southbound Link” is 500 billion yuan equivalent, and the daily quota is 20 billion yuan equivalent. The daily quota will be adjusted.
Qualified Domestic Institutional Investors (QDII) and RMB Qualified Domestic Institutional Investors (RQDII) participating in the “Southward Link” still comply with current management regulations, and relevant cross-border capital outflows are net The amount is not included in the statistics on the use of the relevant quota of “Southbound Link”.