Chinese Banks Readying Bond Sales for Launch of Southbound Link

Two large Chinese state banks are planning to sell offshore yuan bonds in Hong Kong as soon as next week, a move that could set in motion the launch of a new channel for mainland investors to buy offshore debt.

Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. are looking to issue the so-called Dim Sum notes that will be available for purchase by onshore investors through a new trading link, according to people familiar with the matter. The plans aren’t finalized and are subject to change, the people said, asking not to be identified because the details are private.

One of the people said they are making preparations to buy Chinese sovereign or quasi-sovereign Dim Sum bonds, or dollar notes, in the secondary market via the southbound trading link, anticipating it may commence soon.

China has recently opened more channels for local investors to buy securities overseas, following steps also to allow more investment into its domestic financial markets. A new southbound investment route would complete the loop for an existing bond connect program between the mainland and Hong Kong that started in 2017. That link gave global investors access to China’s vast interbank bond market.

Fresh moves would mark more steps by China to further free up its capital account and use more fund outflows to slow a rapid advance recently in the yuan. Authorities this week bumped the Qualified Domestic Institutional Investor quota to a record $147 billion, the seventh increase since September.

A southbound bond link would also help Hong Kong’s status as a global financial hub, as the city slowly recovers from the pandemic and the political turmoil two years ago.

An ICBC representative and the PBOC couldn’t immediately comment, while BOC didn’t respond to a request for comment

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