Discussion in place for international investors to use renminbi bonds as collateral

Financial authorities from the Chinese mainland and Hong Kong are mulling to facilitate international investors using their renminbi bond holdings as collateral for other products linked to renminbi-denominated assets to further promote financial opening-up.

Rico Leung, executive director of supervision of markets at Hong Kong's Securities and Futures Commission, said the SFC is in discussions with mainland authorities on the feasibility of allowing international investors to use their renminbi bonds, purchased through the Bond Connect, as eligible collateral for other renminbi asset-backed products.

Such products would include those cleared through the Swap Connect or the government bond futures contracts to be launched in Hong Kong, Leung said at the China Bond Market Forum 2024 in Beijing on Wednesday.

"This would enable offshore investors to utilize their holdings of mainland renminbi bonds more flexibly, thereby further promoting the development of China's bond markets," Leung said.

According to him, the northbound Bond Connect has seen a cumulative net inflow of over 1.8 trillion yuan ($250.1 billion) into renminbi bonds since its launch in 2017, a size comparable to the cumulative net inflow via the northbound trading of the stock connect programs that kicked off earlier in 2014.

Last year, the annual turnover of northbound Bond Connect reached nearly 10 trillion yuan, up 24 percent year-on-year. The daily average turnover in January even reached a new high of 48.7 billion yuan.