HSBC CEO forecasts jump in foreigners buying China bonds

By Steve Slater

LONDON, Oct (HKSE: 3366-OL.HK - news) 11 (IFR) - Foreign buyers of onshore Chinese government bonds are likely to jump five-fold to 10% of the market within two years, giving a US$100bn investment boost into the country, HSBC chief executive Stuart Gulliver said.

Overseas investors have increased their holdings of onshore government bonds by US$15bn since March, and the head of Europe's biggest bank expects that pick-up to accelerate.

"We expect the proportion of the onshore government bond market owned by foreigners to increase from around 2% today to 10% in the next two years, boosting inflows by as much as US$100bn," Gulliver said on Tuesday in London at an HSBC event on China.

He said "progressive, controlled reform" was accelerating the speed of capital flows in and out of China. That should "pave the way for looser restrictions on ownership of overseas assets by Chinese residents", after Chinese companies have spent US$170bn on overseas M&A already this year, compared with US$100bn in all of 2015, Gulliver said.

"The size of China's economy and the shift towards consumption and services are changing the nature of those acquisitions, from basic resources to services, technology and luxuries that meet the demands of increasingly affluent consumers," he said.

Gulliver said those shifts are part of China's maturing financial markets, including internal investment and reforms, and also in its trade relationships and the internationalisation of its currency.

HSBC, which is based in Britain but makes most of its profits in Asia, is trying to tap into demand for banking services within the country and as Chinese firms look outward.

The bank is still waiting for regulatory approval for a securities joint venture it announced last year, however. Approval had been expected to be granted before the end of September.

As a result, the venture is unlikely to launch this year, said Helen Wong, HSBC's chief executive for Greater China.

Wong said it will be in operation within six months of approval being given, and the bank has already been hiring staff and working on how it will work alongside HSBC's operations.

HSBC will own 51% of the joint venture with Shenzhen Qianhai Financial Holdings, becoming the first foreign bank to get majority control of a securities venture, after years where overseas partners were limited to holding minority stakes.

Gulliver has previously said he wants to use the venture to establish a foothold for the full range of investment banking products, particularly issuing bonds within China. (Reporting by Steve Slater)