Hong Kong recently passed a legislative amendment to make Mandatory Provident Fund (MPF) investment in China’s sovereign and policy bank bonds.
Mandatory Provident Fund is a mandatory pension scheme designed to provide retirement savings for working Hong Kong citizens. The Mandatory Provident Fund Schemes Ordinance was enacted in 1995, and the relevant subsidiary legislation was passed in 1998, 1999, and 2000.
The MPF system was founded in 2000. It has more than 4.5 million members, with 151.2 billion dollars of total assets as of 2021.
Hong Kong Legislative Council passed the Mandatory Provident Fund scheme amendment regulation 2022 on June 1. The amendments will allow MPF constituent funds to invest in bonds issued by the Chinese government, China’s central bank, and three policy banks.
The three policy banks include the Agricultural Development Bank of China, the China Development Bank, and the Export-Import Bank of China.
According to the Hong Kong government press release, MPF can invest up to 30 percent of its total funds in bonds issued or unconditionally guaranteed by those institutions. All MPF funds may also be invested in at least six different types of bonds issued or unconditionally guaranteed by the same exempt institution.
Meanwhile, China has faced capital outflows in recent months, both in bonds and stock markets.
According to Reuters, foreign mutual funds and exchange-traded funds investing in bonds denominated in Chinese yuan saw the highest weekly outflow of net sales of 2.3 billion dollars in mid-May.
Foreign investors have sold Chinese-yuan denominated bonds aggressively in the first three months of this year, reducing their total holdings to 558 billion dollars as of April, a 2.8 percent drop from March.
In the stock market, as reported by Bloomberg, net outflow from offshore investors in Chinese stock markets reached a record 2.2 billion dollars for the first five months.