Hong Kong: Hong Kong Debt Market

Overview

• Hong Kong is one of the most liberal debt markets in the world. International investors are free to invest in debt instruments issued in Hong Kong. There are no restrictions on foreign borrowers tapping the domestic debt market to finance their business.
• Hong Kong has an active and liquid private-sector bond market. The size of the market, as measured by the outstanding amount of Hong Kong dollar debt securities, was US$91.9 billion as at December 2008, accounting for around 78%of the total outstanding debt instruments.
• In January 2007, the Chinese government gave the green light to mainland financial institutions to issue Renminbi (RMB) bonds in Hong Kong, a milestone development of Hong Kong’s debt market.
• China Development Bank (CDB) launched 5 billion worth RMB bonds in Hong Kong in July 2007, its first offshore RMB bond issue.
• In June 2009, HSBC issued RMB 1 billion worth RMB bonds to institutional investors, followed by Bank of East Asia’s retail RMB bonds issuance in July, marking the first RMB bonds issuance by foreign banks.
• In October 2009, China’s Ministry of Finance launched its inaugural sale of sovereign RMB bonds of RMB 6 billion in Hong Kong, which attracted high levels of interest from the investing public.
• As at June 2010, a total of 13 issues of RMB bonds involving 8 issuers had been issued in Hong Kong, with the total amount reaching RMB 38 billion.

• Hong Kong's debt market is relatively small compared to its banking and equity markets. However, growth of the market has been very rapid and the outstanding amount of debt securities had increased to over 42.8% of GDP in 2008, compared with only 8% of GDP in 1994. In particular, the development of RMB bond market is expected to drive Hong Kong’s bond market to a higher level.
• In the budget plan 2009-2010, the Hong Kong government proposed a Government Bond Programme to issue official bonds systematically. The proposal, passed by the Legislative Council in July 2009, allows the Hong Kong government to issue official bonds up to HK$100 billion, with the HKMA helping to offer the bonds and implement the Programme. The Programme is expected to enlarge the local bond market so that sustainable growth can be achieved.
• The Chinese mainland's National Social Security Fund (NSSF) has been allowed to invest in overseas financial markets. Similarly, mainland insurers have also been allowed to invest in foreign debt and money market instruments. These developments are expected to provide impetus to Hong Kong's debt market.
• RMB bonds have recently emerged as a new driving force for the development of Hong Kong’s bond market. China Development Bank (CDB) launched 5 billion of RMB bonds in Hong Kong in July 2007, marking the first offshore RMB bond issue. The total subscription exceeded RMB 14 billion, which was almost 3 times over-subscribed. In 2007, there were three RMB bond issues in Hong Kong by CDB, Bank of China and China Export-Import Bank worth RMB 10 billion. As at August 2008, Bank of Communications and China Export-Import Bank had sold RMB bonds in Hong Kong, while Bank of China, China Construction Bank and China Merchants Bank had also obtained approval to issue RMB bonds.
• In June 2009, HSBC issued RMB 1 billion worth RMB bonds in Hong Kong to institutional investors, followed by Bank of East Asia’s retail RMB bonds issuance in July to mark the first RMB bond issuance by foreign banks. In October 2009, China’s Ministry of Finance launched its inaugural sale of sovereign RMB bonds of RMB 6 billion in Hong Kong, which attracted high levels of interest from the investing public. The success of previous issuances has formed a good basis for further development of RMB bond in Hong Kong. It has also opened up a new channel for financial intermediation between Hong Kong and the Mainland.
• Developing Hong Kong as an Islamic bond (Sukuk) market was one of the key policy initiatives in the Policy Address 2007-2008. The objective of developing Sukuk is to enhance the depth and breadth of the Hong Kong’s debt market. Moreover, a more diversified financial circumstance can reinforce Hong Kong’s status as a global financial hub. In order to cope with legal differences and taxation problems of Sukuk, the Financial Services and the Treasury Bureau is now preparing the amendments to the concerned chapters of the “Stamp Duty Ordinance” and “Inland Revenue Ordinance”. Besides, the government is also consulting with market players so as to set up a proper taxation system for Sukuk.
• HKMA has adopted a four-part approach to boosting the Islamic bond market, including improving related financial infrastructures, enhancing international profile of Hong Kong, promoting product development and raising market awareness. To strengthen co-operation and extend its network with Islamic finance markets, Hong Kong has signed a Memorandum of Understanding (MOU) with Bank Negara Malaysia. Aside from participating in a range of international forums like Islamic Financial Services Board (IFSB) Annual Summit, Hong Kong has also actively organized large-scale events, such as the inaugural Asia Sukuk Summit and the IFSB Technical Committee Meeting to promote its profile in Islamic finance market.
• Hong Kong is developing into a multi-currency capital market and a major debt market. After the introduction of a US dollar Clearing System in August 2000, a second foreign currency clearing system Euro Clearing was implemented in April 2003, followed by the implementation of a full fledged Renminbi RTGS system in June 2007.
• From July 2007, exclusive tender rights on Exchange Fund Bills and Notes (EFBNs) are granted only to the 12 most active market makers recognized by the HKMA, as an incentive to encourage them to trade the Exchange Fund papers more actively. The league tables, one for Exchange Fund Bills (EFBs) and the other for Exchange Fund Notes (EFNs), list the rankings of the 12 market makers with the highest turnover in the respective markets over a six-month period. The league tables are published every June and December based on the turnover from 1 December to 31 May and from 1 June to 30 November respectively.