The domestic credit ratings industry has also gradually opened up to foreign players to create a level playing field. 6. Secondly, Mainland authorities have continued to enhance foreign investment channels, such as combining the QFII and RQFII schemes and simplifying the application process. The inclusion of ETFs in the Stock Connect and linkage between the interbank and exchange traded bond markets will expand the product range for international investors participating in the onshore equity and bond markets. 7. Thirdly, China’s financial markets have moved towards closer integration with global standards. A milestone development is the recent adoption of a legal framework to bring the onshore futures and derivatives markets under better regulation and in line with international best practices, such as recognising the enforceability of close-out netting. Foreign institutions may also choose to sign ISDA agreements with onshore counterparties in respect of OTC derivatives transactions in the interbank market. 8. The liberalisation of the onshore capital markets has resulted in rapid growth in crossboundary capital flows in recent years. In particular, Hong Kong’s mutual market access schemes with the Mainland, namely the Stock Connect and the Bond Connect, have  played a crucial role in encouraging greater portfolio investment into China and the inclusion of RMB assets into major global indices. Within three years, foreign holdings of onshore equities had more than tripled and foreign holdings of onshore bonds had more than doubled at the end of last year. 9.

First is Mainland authorities’ efforts to connect the interbank and exchange bond markets, which will allow participants in each market to access securities in the other market through an infrastructure connection without having to open separate accounts. This should ultimately be beneficial to the growth of both the CIBM and exchange bond markets, thus creating a bigger pie. 15. Foreign investors who access the interbank market through Bond Connect or CIBM Direct will be able to trade in the exchange market, which is the platform where most non-financial corporate bonds are lodged. The construction of the system linkage between the onshore infrastructure institutions is under way. Upon completion, the HKMA’s Central Moneymarkets Unit will explore with the Mainland side on the system enhancements required for Bond Connect investors to participate in the exchange bond market. 16. This development moves closer to having a single access point to the onshore bond market and will further open up access to the fast-growing credit bond market which remains relatively untapped by international investors. This presents an opportunity for investors to look further along the credit curve for diversification and yield. Relatedly, the entry of foreign firms into the onshore credit rating business is expected to facilitate this process, speed up the convergence of local and global ratings standards, and enhance foreign investors’ analysis of corporate credit. 17. Secondly, Mainland and Hong Kong stock exchanges have reached an agreement to include eligible ETFs in the Stock Connect scheme and technical preparations are under way.