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The view of Hong Kong Photo: VCG

The Chief Executive of the Hong Kong Monetary Authority (HKMA), Eddie Yue, recently highlighted progress in financial cooperation between the Hong Kong Special Administrative Region and the Chinese mainland, emphasizing closer collaboration between the two markets as Hong Kong launched a series of activities to mark the 27th anniversary of the city's return to the motherland.

Recent policies introduced by the central government have brought more liquidity to the Hong Kong market and have played a significant role in consolidating Hong Kong's status as an international financial hub, experts said.

The HKMA has been working with mainland financial regulatory authorities to explore further broadening the use of onshore bonds as collateral in the offshore market. The next imminent breakthrough is in relation to the use of onshore bonds under the Northbound Bond Connect as eligible margin collateral for Northbound Swap Connect transactions, Yue said in an article published on the HKMA website on Friday.

This measure will provide investors with the additional choice of a non-cash collateral, reducing their liquidity costs and improving capital efficiency. It will also help vitalize offshore investors' onshore bond holdings and further enhance the attractiveness of onshore bonds. The measure will also promote synergies between the Bond Connect and Swap Connect, thereby further invigorating market participation in the Connect Schemes, Yue said.

Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Monday that the measures will further connect the Hong Kong and mainland markets, expanding mutual liquidity flows. 

Using onshore mainland bonds as offshore collateral can enrich asset support, diversify collateral types and promote the integration of the two financial markets, Dong said.

The more tradable assets and collateralizable assets there are in the Hong Kong market, the more advantageous it is to solidify Hong Kong's position as a financial center, Dong added.

The HKMA is working with the People's Bank of China (PBC), the central bank, on cross-boundary payment linkage between Hong Kong and the mainland. Yue said that the HKMA will soon sign a memorandum of understanding with the PBC to establish a cooperative framework for the linkage. This will provide a safe, efficient and convenient means for cross-boundary payment and settlement, Yue said.

The integration of the two markets comes as the central government has been rolling out mechanisms to support Hong Kong in consolidating its international financial center status.

The China Securities Regulatory Commission announced in April five measures to further expand and optimize the Shanghai-Hong Kong Stock Connect mechanism, support Hong Kong in consolidating and enhancing its status as an international financial center, and promote the coordinated development of capital markets. 

These measures include expanding the range of eligible stock exchange-traded fund (ETF) products under the Shanghai-Hong Kong Stock Connect, including real estate investment trusts (REITs) in the Shanghai-Hong Kong Stock Connect to enrich trading options, and supporting leading mainland companies to list in Hong Kong.

The integration of the two markets has gained pace. In May, around 5,000 new individual investors in the Guangdong-Hong Kong-Macao Greater Bay Area joined the Cross-boundary Wealth Management Connect program and a total of 8.33 billion yuan ($1.15 billion) in cross-border fund transfers was processed, according to the PBC Guangdong Provincial Branch.

Global Times