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Beijing announces interest rate swaps with Hong Kong after Xi Jinping visit

Mainland China and Hong Kong financial regulators said on Monday that they will launch a programme allowing mutual access to interest rate swap trading in six months, in a move to promote the country’s financial derivatives markets.

The arrangement, which was announced on the same day as an expanded currency swap between China’s central bank and Hong Kong’s monetary authority, followed the 25th anniversary of the territory’s return from Britain and a rare visit from Chinese president Xi Jinping.

Xi briefly visited Hong Kong last week, his first trip outside the mainland since the coronavirus pandemic emerged, and pledged Beijing would support Hong Kong to “maintain its unique position and advantages”, including its status as an international financial and trading hub.

The new arrangement, called “swap connect”, will first allow offshore investors in Hong Kong to access mainland interbank financial derivatives markets, according to a joint statement from the People’s Bank of China, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission.

Southbound trading, which would allow mainland investors to access Hong Kong’s derivatives market, will be explored “in due course”, it added.

“Swap connect is another major milestone in deepening connectivity between mainland China and international markets,” said Nicolas Aguzin, chief executive of Hong Kong Exchanges and Clearing, which operates the city’s stock exchange.

“Just as stock connect and bond connect have changed the DNA of equity and fixed-income markets, swap connect will do the same for the interbank derivatives market,” he added in an emailed statement.

The scheme will support the development of China’s capital markets and give international investors an accessible and convenient way to manage their China exposure, he said.

The PBoC said the connect scheme was “conducive to the consolidation and enhancement of Hong Kong’s status as an international financial centre”, adding that mainland investors made Rmb21.1tn ($314tn) worth of transactions in the interbank financial derivatives market in 2021.

Also on Monday, the PBoC said it had upgraded a currency swap with HKMA, expanding its size to Rmb800bn from Rmb500bn. It is the first standing swap agreement signed by the central bank that allows money swaps to be rolled over more easily without termed renewals of agreements, said the PBoC.

In a similar connectivity arrangement, investors in China and Hong Kong started trading exchange traded funds in each other’s markets on Monday.

Additional reporting by Chan Ho-him in Hong Kong

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