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China bond market access
644 Plays3 days ago
This episode is also available as a podcast, search "Global Viewpoint" on your preferred podcast player to watch, listen, and subscribe.
Sheng Wang, Head of Banks and Institutional Client Group Scale Markets from HSBC sits down with Benton Wong, the Vice President, Head of Sales & Marketing from Bond Connect Company Limited, to discuss the development of Bond Connect since its 2017 launch. They’ll cover how the program connects global investors to China's onshore bond market and latest initiatives relevant to China’s market opening.
Find out more here: https://www.business.hsbc.com/en-gb/campaigns/asia-credit-conference
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:12
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Introduction of Guest: Banteng Wang
00:00:20
Speaker
Hello, my name is Sheng Wang from institutional client group of ICG HSBC based here in Hong Kong. Welcome to the latest episode of Global Viewpoint.
00:00:30
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ah Today we have with us as guest, Mr. Banteng Wang, Vice President and Head of Sales and Marketing from Bulk Connect Company Limited. Thanks for having me today.
00:00:41
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Thank you, Bunton, for
What is BondConnect?
00:00:43
Speaker
your time. um This recording is taking place at HSBC's annual Asia Credit Conference 2025. We're going to talk about a very unique and important piece of infrastructure yeah in Asia's fixed market, BondConnect.
00:00:58
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ah This is a market access program connecting China's onshore bond market, which is the second largest in the world, by the way, ah with the rest of the world.
00:01:10
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ah Without further ado, let's get started. Bunton, for the audience who are not familiar with BondConnect, can you give us a brief overview of the program?
00:01:21
Speaker
Of course. So BondConnect is an innovative um but mutual access scheme that allows investors across mainland China and overseas to access each other's bond market.
00:01:34
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Now, it's been made available through infrastructure ah institutions from mainland and Hong Kong that links them together. So known by its ease of access as well as the efficiency, um there's two parts to it, um trading link and the settlement link.
00:01:50
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So on the trading link, what means by that is that the investors could use their familiar interfaces, one of the three access platforms, TradeWeb, Bloomberg, or MarketAccess,
00:02:01
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to trade with their counterparties onshore. So 60 of them, there were 60 of them onshore. Or should this be one of the 60? Of course, of course.
Who are the eligible investors for BondConnect?
00:02:10
Speaker
And um on the settlement link, where it was done through HKMA CMU, which is now called the CMU Omniclare,
00:02:19
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They opened a nominee account under CCDC and Shanghai Clearinghouse, whereby they would do it through a nominee structure, whereby investors would have ah beneficiary ownership of owning those China onshore bonds.
00:02:34
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Now, it has been very um ah easy because that means investors do not have a big ah operational hurdle in doing so without going onshore, and everything will remain offshore.
00:02:46
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So that's they actually the northbound lake, which is has been launched since 2017. Now, in 2021, the southbound lake has also been enabled and announced.
00:02:57
Speaker
So ah now it's a kind of a mutual bilateral access scheme, not just one way. Thank you very much. That's that's very helpful. Jeff, so that myself and also all our audience and the staff, so they talk about a South Bond, which is China offshore investor investing into offshore bonds. Right. And then there's North Bond, which is a offshore investor accessing the China offshore bond market.
00:03:22
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What are the eligible investors taking advantage of these ah schemes? About the eligible investors, ah North Bank is quite um
Understanding Southbound and Northbound schemes
00:03:30
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broad. So it allows all the institutional investors, financial investors ah mainly, to... um invest So including the likes of asset managers, banks, securities firms, insurance ah companies, pensions, etc. And even sovereign um so from funds or central banks, they could do that as well.
00:03:51
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Now, to date, we have now more than 830. ah institutions or investors already onboarded onto the scheme so they could trade um seamlessly.
00:04:01
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And that includes more than 80% of the top 100 asset managers globally, as well as over half of the top 100 banks globally. So it's been quite established.
00:04:12
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Now, ah moving on to maybe... um the self-bound. Now, there's a quota to it. So there's an annual limit of 500 billion RMB and a daily quota of about 20 billion RMB as well.
00:04:26
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Now, the eligible investor, um the list of it is more confined and and defined, I would say, because there are two groups of people. One would be the 41 designated banking financial institutions.
00:04:40
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So we exclude um those sort of non-bank financial institutions as well as the rural financial institutions. And they were designated by the PBOC as the Tier 1 dealers for the open market business in 2020.
00:04:52
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I just we see China being one of them. Exactly. And the second group of people would be the existing QD or RQD
BondConnect's role in market connectivity
00:05:01
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investors. So they could also leverage such ah infrastructure for the investments as well.
00:05:06
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So two groups of people. And what they could do is they could trade through the 22 designated self-bound market makers. And so youre investing into different currencies or different types of bonds.
00:05:19
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I understand BondConnect is actually the centerpiece of a broader market connectivity framework that also includes derivatives and probably Ripple as well.
00:05:31
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ah Can you explain to us how these different pieces work together to enable investors to access the China offshore market? Of course. So um how I tend to think about it is that the development of those schemes kind of tracks the life cycle of a bond.
00:05:46
Speaker
Now, what it means is that um there are different, you know, you can do different things along the life cycle of the bond and leveraging different schemes. And there are great synergies among of those schemes. So allow me to maybe dissect into different levels.
00:05:59
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um On the transactional level, it helps reduce investors' transactional cost as well as allowing more dimensions of the investment sort of strategies to be expressed or views to be expressed.
00:06:12
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ah In the medium term, obviously, also increases the capital efficiency. So it doesn't have to be always selling, buying, selling, you know. And in the long run, um i think this is actually the the most important one would be to increase the attractiveness of the China onshore bonds, as well as integrating towards the more international practices.
00:06:33
Speaker
The scheme has attracted a lot of inflows into the China market.
Introduction to SwapConnect
00:06:39
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So just to give you some figures, right now, two i and I think last month, so we saw a custody balance of 4.5 trillion RMB in terms of foreign holdings in the China bond market, which is um has been growing significantly through the the launch of it.
00:06:55
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And over half of the trading volume was attributed to bond credit investors compared to the CIB and direct investors as well. So, as you can see, you know now that they have all these holdings, what do about it, right?
00:07:09
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um So, from an investor perspective, along the life cycle of the bond, they could obviously think about, okay, how do I manage the risk management of it? Or um how do I make better use of those bonds, right? The holdings.
00:07:24
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Exactly, exactly. So that's why um this call for these features has been manifesting those schemes like SwapConnect or repo to be launched.
00:07:36
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so Now take SwapConnect, for example, which was launched in 2023. The first derivatives connect program that is managed by HKEX as well as CFETs.
00:07:49
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to allow investors to first um access the onshore interest rate swap market. So just to know be in an investor's mind, when they um see the need for risk management risk mitigation or just think about how do they do it, then they could use SwapConnect instead of just outright buying or selling, though which may may generate quite significant transactional cost to um take care of that aspect.
00:08:18
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So that that's pretty pretty big. but The last thing about on the collateral, I think that's an aspect that the PBOC has been um announced and you know pushing forward on how to elevate China on shop bonds to be the HKLA, right? High quality liquid asset.
00:08:33
Speaker
And that's a very important factor thing to to do because um they can now use it for more instances. As you can see, all these together, I think there's great synergies as well as kind of fit in the toolbox of an investor, by connector, so ACI BN direct investors, that allows them to manage their positions greatly.
Recent interest and advantages of BondConnect
00:08:53
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so um Speaking of collateral, and and I know that HSBC is one of the 11 offshore market makers, yes we are as well as a very active BondConnect custodian as well.
00:09:04
Speaker
So, Sean, would you mind sharing with us a little bit on how um the scheme has been and and as well as how it has stimulated interest from different investor base? Well, absolutely. um You know, it's apparently early days after the recent launch.
00:09:19
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And however, we have already seen a very strong interest ah from a very broad variety of different type of market participants, including commercial banks, broker-dealers, asset managers.
00:09:32
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ah They would inquire, they would prepare, they would get themselves ready and even conduct some pilot transactions. So that they have the knowledge of when they need to use this bond to refinancing, they can.
00:09:46
Speaker
And, you know, in your word, this gives them additional scenarios to make use of the bond that they acquired by Bacconet. So it's an overwhelming development in the market. It's good to know.
00:09:56
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um Now, changing track a little bit, ah we are recording this at our Asia credit conference. You'll notice this is a very busy conference. We have many, many issuer clients meeting with many investor clients outside this room. and Can you explain to us um what is the balance between investors taking advantage of Bitcoin accessing ah primary issuances versus secondary market trading?
00:10:25
Speaker
Okay, sure. So maybe this is just give you of figures to start with. So when we look at um ah published figures in terms of instruments being traded ah from a secondary perspective, um CGBs, the China government bonds, as well as the policy banks, usually accounts for 75% 80% instruments.
00:10:44
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percent of the trading volume, and then you have about 15% or so percent covering um the vote the market volume from NCD, the Negotiable Certificate of Deposits.
00:10:56
Speaker
Now, ah those when we talk to investors, they mainly source of the liquidity through the secondary market, which is Ample. We have 60 market makers, which again, it's just... You guys were running a lot of the earlier ones as well.
00:11:12
Speaker
So from that regard, seems like it's been quite well taken care of. But we do hear from investors from time to time about how on some of these credit instruments, they um find it very hard to source liquidity sometimes in the secondary.
00:11:27
Speaker
Mm-hmm. And some of them may be because investors usually do a buy and hold kind of strategy and it's not a available, a lot ah of whatever of and instruments available and and out it there. And obviously, kind of going back to your question, was primary.
00:11:40
Speaker
Now, ah primary market do have a little bit of nuances sometimes in terms of accessing. ah Operational kind of standpoint um maybe is the likes of having to sometimes fix those things.
00:11:55
Speaker
subscription orders to the writers or signing those distribution agreements on each and every issuance. um That's one. And sometimes they don't know where to find them. And it's not the same group of people designated by the mechanmakers.
00:12:09
Speaker
So that that's some of the reasons. So we're now approaching the eighth anniversary of the launch. Right, BoxConnect. So I understand over the past eight years, BoxConnect company has been working really hard to streamline the processes, your act functionalities, et cetera.
Improvements and accessibility of BondConnect
00:12:27
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ah How different does BoxConnect look today compared to when it was launched eight years ago? What are the milestone improvements to you?
00:12:38
Speaker
That's the the most, but the the question love the most. Because we do we do, when we look back, right, it's been ah quite a long journey and lots of has a lot has happened. And thanks to partners like HSBC as well as the regulators and the financial and infrastructure firms, we have done quite some enhancements where we kind of get to where we are right now more well-established as well as um quite smooth of operation. Now, um just to maybe share a little bit more, Colin, how I understand it is that um through these eight years, I would decide it into two halves.
00:13:12
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So the in the first half of three, four years, um there's been more depth um in terms of the enhancement because enhancements because the bunker itself is, when it was first launched, it was quite bearable and with um ah operational, some operational uplift suggested by the stakeholders like like yourself,
00:13:33
Speaker
um We have done quite a few things. So just to name a few. um First thing, the trading platforms we have added from one to three trading platforms covering the all the global investors.
00:13:45
Speaker
That's helpful. um The second point would be to extend the trading hours to the international investors so that the UK, for example, UK investors, they don't have to crop the bed and and actually go into the office at 5 a.m. m to invest in China, right?
00:13:59
Speaker
And that that's also very accommodating. And last thing I will mention would be to allow up to three ethics settlement banks for ah investors to kind of have the best execution kind of thing in mind and to manage their ethics exposure that way.
00:14:15
Speaker
So that's more on the operational uplift suggested by the ecosystem, right? And then the second point I want to make is ah some of the acceleration by the global indices inclusions.
00:14:28
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And that's but very important because that has sped up the modernization of all the infrastructure. So that's that's um where we are in in in the first half in terms of depth.
00:14:39
Speaker
And um the with the breadth of it or the width of it would be what we just discussed, right? With um some of the other sister schemes like Swap Connect yeah or the repo yeah that has been...
00:14:51
Speaker
great complementary schemes so that investors could you know be more comfortable as well as confident in investing in China. So I think ah and all in all, just to wrap up, you know there's always things we could do better, and there's always pockets that we are getting investors and then yourself ah feedbacks but clear framework and guidance are already
Hong Kong's role as a financial center with BondConnect
00:15:16
Speaker
in place. So um if investors want to navigate the China market, obviously they could talk to you us, right?
00:15:24
Speaker
Thank you very much. that that's That's really helpful. um Now, you know we're we're recording this in Hong Kong. So ah what is the significance of Bob Gmaski to Hong to Hong Kong's status as the international financial center?
00:15:39
Speaker
Yeah, I think it's a very mutually beneficial beneficiary relationship ah to to me. And I think I will highlight two aspects. One would be in the infrastructure sort of lens.
00:15:52
Speaker
Now, what it means by that is that Bank and I have been leveraging Hong Kong's financial infrastructure like CMU, Omniclear that we just mentioned, to... um and hence as super connector of a capital flows.
00:16:04
Speaker
Now, through that, we have seen various parties, including custodians, FX banks, or even investors committing capital talents, presence in the city to ensure that um the growth is has is captured.
00:16:20
Speaker
The scheme also helps harmonize Hong Kong's regulatory framework with some of the international norms. so that um I think investors would feel really reinforcing that um the transparency is there, the risk control is there, so that they were more eager to put forth capital in into China. So on that regard, I'm sure HSBC has adopted and a lot of things as well in assisting Hong Kong to be this leading international R&B business hub.
Future prospects of BondConnect and China's market opening
00:16:50
Speaker
So Zhang, would you mind sharing a little bit of oh with us a little what HSBC has done in the past? We have the benefit of ah strong balance sheets both here in Hong Kong and also you in China.
00:17:00
Speaker
So that enables us to make ah you know full use, take a full advantage of all the virus connect schemes that you have just outlined to support our customers for their ah financing as well as investment activities.
00:17:14
Speaker
ah So that's what we do. We work with market participants, work with regulators, we work with all our clients, and we work with very important infrastructure that bulk of that company ah to make contribution to Hong Kong status as the leading ah international Airbnb business center.
00:17:31
Speaker
and We talk ah about the scheme, we talk about the history, we talk about ah the ah at the development. What more can we expect from Bulk Connect going forward?
00:17:43
Speaker
Of course, that's the crystal ball, right? Well, broadly speaking, obviously, the direction that we're heading in terms of the R&B internationalization or the China market opening.
00:17:54
Speaker
I think um the HKLA that we we discussed earlier, I think is the the way forward. And hopefully there will be more um initiatives and you know details being shared and in the due course.
Conclusion and thanks
00:18:05
Speaker
Thank you very much. That's ah that's very helpful. Bantun, I'd like to thank you very much for joining me today on this episode of ah Global Viewpoint. I find what you have shared with us around Boknak absolutely fascinating.
00:18:19
Speaker
It's a really pleasure to speak with you. ah For our audience, thank you very much for taking the time to listen to our conversation. ah Thank you, Bantun. Thank you.
00:18:36
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.