Hong Kong boosts yuan hub status by expanding mainland China bond collateral initiative
Hong Kong will expand the use of mainland Chinese bonds as collateral to obtain yuan liquidity, furthering efforts to enhance the currency's internationalisation and the city's role as an offshore yuan hub.
CMU OmniClear, a wholly owned subsidiary of the Exchange Fund managed by the Hong Kong Monetary Authority, and Hong Kong Exchanges and Clearing (HKEX) signed a memorandum of understanding (MOU) on Tuesday that would allow the two entities to enhance cooperation in many areas.
The MOU would lead to the realisation of "cross-asset class efficiencies across equities and fixed income, expanding the use of mainland bonds as collateral [and] enhancing Hong Kong's [role] as a bond issuance centre and [for] developing an international central securities depository in Asia", according to a statement from the HKMA.
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Hong Kong is stepping up efforts to improve the post-trade securities infrastructure of its capital markets and support the long-term development of the city's fixed-income and currency ecosystem.
HKMA chief executive Eddie Yue said the MOU will support the development of Hong Kong's capital markets. Photo: Edmond So alt=HKMA chief executive Eddie Yue said the MOU will support the development of Hong Kong's capital markets. Photo: Edmond So>
"This MOU signifies an important milestone and our shared commitment to supporting the development of Hong Kong's capital markets," said Eddie Yue, chief executive of the HKMA.
On January 13, China's central bank governor Pan Gongsheng announced a slew of measures to support the city's development and optimise the cross-border connect schemes, including allowing global investors to use onshore Chinese bonds under the northbound Bond Connect scheme as collateral in a repurchase, or repo, agreement.
A repo is a short-term borrowing transaction to sell securities and repurchase them later at a slightly higher price. The seller could obtain funds, in this case in Chinese yuan, at lower rates.
"We look forward to working closely with the HKMA and CMU OmniClear to advance the development of Hong Kong's fixed-income market, enabling the next chapter of [yuan] internationalisation and enhancing Hong Kong's status as an international financial centre, a global risk management centre and an offshore [yuan] business hub," said Bonnie Chan Yiting, CEO of HKEX.
Implemented on February 10, global investors have shown strong interest in using onshore Chinese bonds as collateral for repo agreements.
Financial institutions including Citic Securities International Capital Management, GF Global Capital and Eastfort Asset Management were among the first investors to complete such transactions, according to Standard Chartered, one of the programme's 11 market makers.
The programme effectively revitalised foreign investors' onshore bond positions and improved the attractiveness of yuan assets for international investors and further Hong Kong's leading position as an offshore yuan business centre, according to experts.
Onshore Chinese bonds were considered a less flexible investment option for overseas investors because they could not be used as collateral in repos, collateral financing transactions, or as margin collateral for other activities.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.
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