The Rise of Hong Kong's Corporate Bond Market: Drivers and Implications

Abstract

The growth of Hong Kong SAR’s corporate bond market has accelerated considerably since the global financial crisis, suggesting that local corporations increasingly regard market-based financing as a workable alternative to bank-based funding. The acceleration was driven by both cyclical and structural factors such as unconventional monetary accommodation by major central banks and market promotion initiatives by the Hong Kong government. From the perspective of financial stability and longer-term financial development, the rapid growth of the bond market has mixed implications. On the positive side, it complements bank-based financing, providing the economy with an additional channel of financial intermediation. However, policymakers need to be vigilant about the potential risks to financial stability as the corporate sector may have become more vulnerable to shocks as a result of increased leverage.

Full publication: What Do New Forms of Finance Mean for EM Central Banks?

Keywords: Corporate bond market, Hong Kong SAR, financial intermediation, corporate leverage, bank-based financing, market-based financing

JEL Classification: G12, G21, G30, E50