By Steve Slater
LONDON, Oct 11 (IFR) - Foreign buyers of onshore Chinesegovernment bonds are likely to jump five-fold to 10% of themarket within two years, giving a US$100bn investment boost intothe country, HSBC chief executive Stuart Gulliver said.
Overseas investors have increased their holdings of onshoregovernment bonds by US$15bn since March, and the head ofEurope's biggest bank expects that pick-up to accelerate.
"We expect the proportion of the onshore government bondmarket owned by foreigners to increase from around 2% today to10% in the next two years, boosting inflows by as much asUS$100bn," Gulliver said on Tuesday in London at an HSBC eventon China.
He said "progressive, controlled reform" was acceleratingthe speed of capital flows in and out of China. That should"pave the way for looser restrictions on ownership of overseasassets by Chinese residents", after Chinese companies have spentUS$170bn on overseas M&A already this year, compared withUS$100bn in all of 2015, Gulliver said.
"The size of China's economy and the shift towardsconsumption and services are changing the nature of thoseacquisitions, from basic resources to services, technology andluxuries that meet the demands of increasingly affluentconsumers," he said.
Gulliver said those shifts are part of China's maturingfinancial markets, including internal investment and reforms,and also in its trade relationships and the internationalisationof its currency.
HSBC, which is based in Britain but makes most of itsprofits in Asia, is trying to tap into demand for bankingservices within the country and as Chinese firms look outward.
The bank is still waiting for regulatory approval for asecurities joint venture it announced last year, however.Approval had been expected to be granted before the end ofSeptember.
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 ofapproval being given, and the bank has already been hiring staffand working on how it will work alongside HSBC's operations.
HSBC will own 51% of the joint venture with Shenzhen QianhaiFinancial Holdings, becoming the first foreign bank to getmajority control of a securities venture, after years whereoverseas partners were limited to holding minority stakes.
Gulliver has previously said he wants to use the venture toestablish a foothold for the full range of investment bankingproducts, particularly issuing bonds within China. (Reporting by Steve Slater)
HSBC Holdings (HSBA)