The ‘Southbound Join’ simply made it simpler for Chinese language buyers to purchase abroad bonds

A brand new channel for mainland buyers to buy abroad bonds opened on Friday, whilst uncertainty lingered over the destiny of closely indebted developer China Evergrande Group.

The Southbound Bond Join is an association that enables institutional buyers in mainland China to put money into the Hong Kong bond market “by way of connection between the Mainland and Hong Kong monetary infrastructure companies establishments,” based on the joint announcement by the Individuals’s Financial institution of China and the Hong Kong Financial Authority on Sept. 15.

HKMA Deputy Chief Government Edmond Lau described the opening as a “main breakthrough” which completes the two-way opening of China’s bond market by way of Hong Kong.

“I feel the largest profit could be that it helps considerably enlarge the investor base of our Hong Kong bond market,” Lau informed CNBC’s Emily Tan.

“Mainland buyers, they’ve very excessive financial savings charge they usually have a must diversify their threat and asset portfolio and due to this fact, that is actually a superb direct and likewise handy channel for them to take a position into the offshore bond market by way of Hong Kong,” he mentioned.

The Southbound Bond Join is one among a number of “join” applications that hyperlink the mainland markets with Hong Kong. Different related applications embrace the Inventory Join, which permits buyers within the mainland to commerce some shares in Hong Kong, whereas additionally permitting overseas buyers to entry Shanghai and Shenzhen listed shares within the mainland.

The launch of the brand new bond funding channel for mainland buyers comes as questions remain over debt-ridden Evergrande’s ability to pay off a massive interest on a dollar-denominated bond that was due Thursday.

Whereas a unit of the corporate dedicated to paying the curiosity on a mainland-traded bond earlier this week, Evergrande has up to now been silent on the $83 million greenback bond curiosity fee, with extra coupon funds due within the coming weeks.

Though no fee was made on Thursday, the corporate won’t technically default until it fails to make that fee inside 30 days.

“We can not touch upon the affairs of particular person corporations, however what we will say is that the Hong Kong banking sector’s publicity to the high-leverage actual property builders on the mainland aren’t vital,” Lau mentioned.

“We consider that any influence rising from a fallout of those corporations are manageable in Hong Kong,” he mentioned.

— CNBC’s Emily Tan contributed to this report.