(Bloomberg View) — Chinese President Xi Jinping will be in Hong Kong from June 29 to July 1 to attend a ceremony marking the 20th anniversary of the return of Hong Kong to China. All signs point to the likelihood that the official start date for the Hong Kong-China bond connect program will be announced during this visit — and it couldn’t come soon enough.
The first trading link for bonds between the mainland and Hong Kong will be the final catalyst to get China’s debt securities partially included in the major global indexes. Don’t underestimate the importance of that happening, as its significance would equal the decision last week by MSCI Inc. to include the nation’s domestic stocks in its benchmark indices.
For example, the development of China’s bond market could be used to help finance strategic projects in Xi’s “One Belt, One Road” infrastructure program.With more than $10 trillion of bonds outstanding, China has the world’s third-largest fixed-income market. Yet foreign investors only account for about 2% of the market, as only a small number can actually access the securities via the Qualified Foreign Institutional Investor programs (known as QFII and Renminbi QFII) and the People’s Bank of China eligible-institutions program.
Here’s why the start of the connect program is urgent. The amount of corporate bond financings fell to a record low in May, coming in at a negative 217 billion yuan ($31.9 billion) as the amount of bonds that matured exceeded new offerings. Companies also canceled or postponed 372 planned bond sales valued at 340 billion yuan in the 12 months ended May 31, up from 287 billion in the prior 12-month period, according to data compiled by Bloomberg.