The chief executive of the Hong Kong Monetary Authority, Eddie Yue, on Tuesday said a planned increase in the quota for the Southbound Bond Connect trading scheme is necessary.

This came after People's Bank of China (PBoC) governor Pan Gongsheng announced the quota will be expanded from 500 billion yuan to 800 billion yuan.

Yue said there is clear demand for a higher quota for the scheme, which enables onshore investors to access Hong Kong’s bond market.

He noted that coverage of the scheme was extended last year to include asset managers, brokers and insurance companies in addition to banks.

“They've actually already started to invest through the Southbound Bond Connect into the Hong Kong bond market. And the quota has been used up very, very nicely,” Yue said.

“By expanding the capacity of the quota to 800 billion [yuan], that will allow more space for mainland institutional investors to diversify their portfolio using Hong Kong's bond market and bond platform as a launch pad, both to invest into the local bond market and into the global bond market.”

Yue also welcomed a planned expansion of the HKMA’s RMB Business Facility, which offers banks stable and lower-cost yuan funding, from the current 200 billion yuan to 500 billion yuan.

The size of the swap facility was doubled from 100 billion to 200 billion yuan early this year, but Yue said that 200 billion has already been used up.

“There are more and more banks wanting to participate in the facility,” he said.

“So we actually need that not only to satisfy the needs of Hong Kong and mainland Chinese corporates to access stable and low-cost RMB funding for their real economy activities into the global network, but we also channel that liquidity through our banking network into other markets, including the Middle East, Asean and Europe.”

Yue said the increase in the RMB Business Facility will promote the use of the currency globally.



Edited by Thomas McAlinden