Hong Kong's International Financial Centre: Retrospect and Prospect

expanded, volumes grew by 400% over the next decade, and a sufficiently liquid secondary
market developed. 48
At the start of 2009, Hong Kong dollar debt securities outstanding were
valued at US$91.9 billion, or nearly 80% of the total outstanding debt instruments held locally.
Anchoring Hong Kong’s contemporary bond markets are Exchange Fund Bills with shortterm
maturities and Notes with maturities up to ten years, as well as interest rate swaps and
options. Trades in Bills and Notes are cleared through the RTGS system (real time and end-ofday
delivery versus payment) managed by the Central Money Markets Unit of the Hong Kong
Monetary Authority. Bond trading among private intermediaries is mainly over-the-counter, but
the Hong Kong Exchange now lists many debt instruments. Some banks and brokers also now
offer on-line bond trading to institutional investors and retail clients.
49
To enhance the chances
that Hong Kong-based intermediaries will play a greater role in underwriting Asian debt
securities and marketing them to foreign investors, in 2010 the HKMA joined with regional
counterparts and Euroclear in a task force to promote the development of a common platform for
post-trade processing.
The most promising avenue for catching up with Singapore’s growing bond markets,
however, looks set to be opened by RMB-denominated bonds. On January 10, 2007, China’s
State Council authorized Mainland financial institutions to issue RMB bonds in Hong Kong.
The proceeds were allowed to be remitted to the Mainland. Similarly, future interest payments
were allowed to be paid in RMB directly to foreign bondholders. In addition to requiring the
further liberalization of RMB banking services in Hong Kong, this development prompted the
HKMA to collaborate with the operators of the interbank clearing system to build a modern
RMB RTGS system, which opened in June of 2007. The next month, the first local RMB bond
was issued by the Chinese state-owned China Development Bank. The equivalent of nearly US$
2 billion was raised, triple the amount originally expected The funds were to be used back on the
Mainland for infrastructure projects.
Although, as noted above, bond markets in Hong Kong are starting from a low base, the
promise of RMB bonds for the investment banking arms of local banks as well as for foreign
firms remained attractive. In June 2009, HSBC (China) Company Limited became the first
locally incorporated foreign bank to issue an RMB bond in Hong Kong. Although it did not need
the funds, its declared intent was to deepen the market by establishing a pricing benchmark. The
Bank of East Asia followed a month later. Then in October, China’s Ministry of Finance issued
sovereign RMB bonds totalling RMB 6 billion. In February 2010, limits on types of issuers were
relaxed and non-financial firms began to tap the new market. Hopewell Highway Infrastructure
Limited issued the first such bond the following July, and McDonald’s Corporation sold the
equivalent of US$29 million in RMB notes in August to provide working capital for its
burgeoning operations on the Mainland. By June 2010, eight issuers had launched thirteen RMB
48 Ceajer Chan Ka-keung, “Key step to develop bond market,” The Standard On-line,” July 06, 2009.
49 Hong Kong Trade Development Council website.
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