Hong Kong as an Ideal Platform to Go into Mainland China 6. The Mainland of China is home to the second largest stock market and bond market in the world. While Mainland China’s capital markets have long been rather difficult to access, this paradigm is gradually changing. 7. In the old days everyone had to go through the different programmes of QFII, RQFII, CIBM direct, with all the associated processes of applying for quotas, signing up new service providers and counterparties, setting up new trading system, conforming to onshore rules, 1/4  BIS central bankers' speeches  etc. But the introduction of Stock Connect in 2014 and Bond Connect in 2017 are gamechangers for a lot of international investors. 8. While the pre-existing access channels still cater for some investors like ourselves who have already set up all the systems, the Connect schemes enable all international investors to implement and manage their Chinese investments much more easily based on familiar international rules and practices. They can continue to leverage their existing systems and global partners, such as brokers, custodians and banks without the need to engage onshore service providers. For example, Mainland China is one of the very few markets that require direct holding of securities. But Bond Connect makes nominee holding possible to foreign investors. This drastically reduces the complexities for them to settle trades and manage assets. 9. The Connect schemes are fast gaining popularity among offshore investors.
Up to September, Stock Connect captured over 65% of foreign holdings of A-shares; its Northbound daily average turnover doubled year-on-year to RMB42 billion for the first nine months of this year. In just two years’ time, Bond Connect has also quickly gained traction. It now has over 1,300 investors from 31 jurisdictions, and 61 of the top 100 global asset managers. In the first ten months of the year, it contributed to around 40% of the increase in foreign holdings of onshore bonds; its daily turnover increased 2.7 times year-on-year, and now accounts for more than 60% of the overall trading turnover by foreign investors. 10. And like other things we do, we build on the good start and keep working to make the Connect schemes more attractive to international investors. We introduced in June a new arrangement that will enable investors to obtain and hedge in CNY for the Stock Connect. For Bond Connect, we have expanded the settlement cycle, introduced DvP settlement and block trade functionality, and added an additional electronic trading platform. We continuously listen to market participants, and are exploring further enhancements such as expansion of tradable product scope under Bond Connect and launch of its Southbound leg. Huge Inflow into Mainland China’s capital markets 11. Given the much greater ease of investing in the capital markets in the Mainland of China, foreign holdings of A-shares and onshore bonds increased rapidly by 73% and 93% respectively in the past 2 years.