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Hong Kong to let MPF invest in China sovereign, policy bank bonds

By Hui Ching-hoo   
December 24, 2021

Hong Kong will allow the Mandatory Provident Fund to invest in China’s sovereign and policy bank bonds.

Each of the roughly 320 MPF funds will be able to allocate up to 30% of their total assets to an individual bond, or 100% of assets to at least six bonds.

The Mandatory Provident Fund Schemes Regulation will be amended to classify bonds issued by the Chinese government and three policy lenders – China Development Bank, Export-Import Bank of China, and Agricultural Development Bank of China – as “exempt authority” to accommodate the loosening, Hong Kong Secretary for Financial Services and Treasury Christopher Hui writes in a blog post published on the government’s website.

He says this is expected to be completed as early as mid-2022.

“Given that the three policy banks are established and provided with credit support by the Central People’s Government (CPG), and that they all serve the objective of implementing the economic and social policy of the CPG, it is also justified for granting them such exemption,” Hui writes.

Currently, only certain entities, including the Hong Kong government and the central or reserve banks of countries, are classified as exempt authority. MPF funds are allowed to invest in bonds that don’t have the classification provided they meet certain credit rating criteria.

According to Hui, this has limited MPF investments in Chinese sovereign and policy bank bonds because some of them are not rated by any ratings agency.

He says as of September 2021, only 0.27% of the total value of MPF assets were invested in these bonds compared to 2.41% in Chinese commercial debt.

Ayesha Macpherson Lau, chairman of the Mandatory Provident Fund Schemes Authority, which supervises the MPF industry, welcomed the move to loosen the investment restriction.

“This initiative will further diversify the products for MPF investment, which is not only responding to the MPF industry but also helping MPF scheme members seize the opportunities in the Mainland bond market to strive for better returns,” she says in a statement on December 22.

The MPF, Hong Kong’s largest public retirement scheme, managed HK$1.17 trillion (US$150 billion) of assets for 4.5 million members as of September 2021.