• 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's private sector bond market is one of the largest and most liquid in the region. The size of the market, as measured by the outstanding amount of Hong Kong dollar debt securities, was US$98 billion as at December 2007. Private sector bonds accounted for over 82% of the total.
• In July 2007, the first issue of Renminbi (RMB) bonds in Hong Kong was launched by China Development Bank (CDB), totalling RMB5 billion. This marked the opening of a new channel for financial intermediation between Hong Kong and the Chinese mainland.
• Hong Kong is committed to become a centre for Islamic finance. The first Islamic bond is expected to be ready by 2008.
  

Industry Data

Overseas issuers are active players in Hong Kong's debt market. Nevertheless, international experience suggests that Hong Kong domestic debt market, or even the Asian debt market, is not mature enough compared with the US and European markets to be able to have substantial exports.


Industry Development and Market Outlook

• Asian economies have stepped up their efforts in strengthening the regional bond market development. In July 2005, the ABF Pan Asia Bond Index Fund (PAIF) was listed on the Stock Exchange of Hong Kong. The listed bond fund allows easy access by both institutional and retail investors who wish to invest in eight Asian bond funds in a cost-effective and convenient manner. Moreover, PAIF is the first foreign bond fund with access to the interbank bond market of the Chinese mainland. This is an important step in opening up China's bond market to foreign participants.
• 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 had been three RMB bond issues in Hong Kong by CDB, Bank of China and China Export-Import Bank worth RMB 10 billion. As of August 2008, Bank of Communications and China Export-Import Bank sold RMB bonds in Hong Kong, while Bank of China, China Construction Bank and China Merchants Bank have also obtained approval to issue RMB bonds and intend to do so by end of the year. The success of the issue of RMB bonds forms a good basis for the further development of the RMB bond market in Hong Kong. It has also opened up a new channel for financial intermediation between Hong Kong and the Mainland.
• Hong Kong is committed to become a centre for Islamic finance. The HKSAR Chief Executive identified the development of an Islamic bond market in Hong Kong as a key policy initiative in his 2007 Policy Address. The first Islamic bond, sukuk, which would be issued by the Airport Authority, is expected to be ready before end of 2008 once tax-exemption approval is gained from the government.
• HKMA completed the second phase of the review of debt market development in 2007. The study made a number of recommendations associated with the regulatory process, investment benchmarks and guidelines, and tax treatment, with the aim of attracting issuers and broadening the investor base. The findings and recommendations have been submitted to the HKSAR government for consideration.
• Multi-Currency Capital 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.
• Rapidly growing Hong Kong dollar debt market: Hong Kong's debt market is relatively small, compared to the banking and equity markets. However, growth of the market has been very rapid and the outstanding amount of debt securities has increased to over 47% of GDP in 2007, compared with only 8% of GDP in 1994.
• 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.
• 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.
  

Appendix

League Tables of Market Makers for EFBNs
(Based on turnover data from 1 December 2007 to 31 May 2008)