THE Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said Friday it had used up its US$6.5 billion quota to invest in the mainland’s capital market and would apply to raise the quota.

    Both the 30 billion yuan (US$4.95 billion) quota to enter the onshore interbank bond market and the US$1.5 billion Qualified Foreign Institutional Investor (QFII) quota have been exhausted, Eddie Yue, deputy chief executive of the HKMA, told the Legislative Council Panel on Financial Affairs.

    “We will discuss with the mainland regulators to increase the quotas,” Yue said at a question and answer session.

    The HKMA was first granted a 15 billion yuan quota to buy mainland interbank bonds in 2011 and the quota was doubled a year later.

    China still keeps a tight leash on inward bound investments in its capital markets but has allowed more foreign central banks, clearing banks and banks involved in cross-border yuan trade settlement to invest in its bond market.

    QFII investors were also permitted to buy interbank bonds last year, 11 years after the program was launched. Before that, they could only buy bonds listed on the exchanges which made up a fraction of the overall pool of outstanding debt in China.

    Started in 2002, the QFII program is among a handful of channels that allow foreign financial institutions to invest in the Chinese mainland securities markets, including stocks, bonds and money market instruments.

    Higher yields in China’s onshore market are attractive to global investors hungry for higher returns. Arbitrage flows taking advantage of the chunky gap between onshore and offshore rates have also picked up recently. (SD-Agencies)