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Future Prospect of Hong Kong debt market

            The debt market has longed been playing a crucial role in the capital market of most developed countries. Issuance of debt securities can provide large corporations with long-term fund, using reasonable price. It also provides investors a choice, beside bank saving, with value-added prospect and lower risk when comparing with stock. As in international financial center, Hong Kong is famous for its maturity of various financial institutions. Our stock market rank eighth in the world in terms of market capitalization; foreign exchange turnover has the number five ranking. We also have a large banking sector with 80 out of the top 100 banking institutions in the world setting up representation offices or branches here. However, one important element of an international financial center, the debt market, seemed to be not existed at all before 1990. A number of impediments can be identified, namely the unfavorable tax treatments for corporate bonds, deficiencies in the benchmark yield curve and debt issuance and listing framework, narrow investor base, restrictive credit rating requirement and low secondary market liquidity. The continuous surplus of the Hong Kong Government also made it unnecessary to issue government bonds. Hong Kong debt market has only begun to emerge in a significant way since 1990. The Government, in particular the Hong Kong Monetary Authority which was established in 1993, has played an important role. The total Hong Kong dollar debt securities outstanding in 2000 is about 12 times larger than ten years ago, with one quarter being the Exchange bill and Note. However rapid the improvement has been made, the HK debt market is still lagged behind substantially, comparing with other developed countries. Stepping into 2000s, with the establishment of the Hong Kong Mortgage Corporation (HKMC), the implementation of the Mandatory Provident Fund (MPF) and the US dollar clearing system, further development is expected.

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