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Written by: Yang Yingwei
2021-06-26 19:49
Last update date: 2021-06-28 12:10
Hong Kong's eighth batch of inflation-linked bonds, iBond, was officially listed on June 24.
Earlier, the subscription market responded enthusiastically, with 710,000 valid applications and a total principal of more than 53.9 billion yuan, both of which hit a new high since the first issuance in 2011.
At first glance, iBond, which has a fixed interest rate of 2%, is like an "alternative sugar" with "profits and no losses". The middle-class citizens are very welcome, and the SAR government is quite satisfied with the results. However, as a "government bond", iBond, Should the significance of the release just stop here?
The "sugar" of the citizens: it is better for the middle class to have something better than nothing.
iBond is a three-year Hong Kong dollar government bond with a dividend payout every six months. The fixed interest rate (ie, the "guaranteed" interest) is 2%. The floating interest rate is linked to the inflation rate within six months. The final dividend rate shall be the higher.
The SAR government first proposed the issuance of iBond in the 2011/12 Budget. The purpose is to "promote the development of the local retail bond market" and "provide an additional investment option for local citizens to deal with inflation" to reduce the impact of inflation on the citizens.
Over the past ten years, the authorities have issued a total of eight batches of iBonds and distributed 33 interest payments.
It is undeniable that each batch of iBond issuance is indeed popular with some citizens, because even if there are only two fixed interest rates, it can be said to be "profitable without loss."
However, in the era of soaring prices, regardless of whether iBond can really help the people who subscribed to fight inflation, its biggest problem is that only the middle class can enter the market, and it has not benefited the grassroots citizens who are most affected by inflation.
The biggest problem with iBond is that it is difficult for the grassroots citizens who are most affected by inflation to benefit.
(China News Service)
Taking the iBond issued this time as an example, the subscription fee for each lot is 10,000 yuan, and each person receives 3 lots. Based on the highest dividend rate in the past 6.08%, the maximum profit can be 1,800 yuan after three years of freezing.
However, in Hong Kong, where the poverty rate is as high as 21.4%, that is, one out of every five Hong Kong people is poor, how many people can have 30,000 yuan in spare money to subscribe for iBond?
By the same token, for the middle class with asset allocation and wealth management plans, the 1,800 yuan may be just a "chicken rib", but it may be important to the grassroots who are sensitive to rising prices. Unfortunately, they have no way to enter the market.
According to the Hong Kong Poverty Situation Report 2019 (Table 1), from 2012 to 2019, the poverty line for one-person households has risen from RMB 3,600 per month to RMB 4500-in other words, poor people in one-person households have to eat or drink for three months Only one lot of iBond can be purchased; looking at households with six or more people, the poverty line has also risen from 16,000 yuan a month to 23,000 yuan during the same period. According to calculations, this family is just able to enter the market, but can not buy 3 lots.
Some people may argue that even the poor can save up to subscribe, but the reality is that when they can't even cover the most basic housing and food expenses, how can they save?
(Hong Kong 01 drawing)
It can be seen that although iBond's earnings are linked to inflation, if the authorities believe that iBond alone can "mitigate the impact of inflation," it can be said to be "separate from the ground" and even worsen the already bad situation of disparity between the rich and the poor.
The government's "debt": should not be issued for the purpose of issuing, but to invest in the future
The government claimed that another major purpose of the issuance of iBond is to promote the development of the local retail bond market to encourage the public to recognize and invest in bonds as a financial product.
But can the actual operation achieve the expected results?
Let's look at a set of data first.
Except for the first batch of iBonds, each time it has doubled the subscription, which shows that the public demand is very strong; however, in the past ten years since its launch, the previous issuances have only been more than 10 billion yuan, and the total amount has not exceeded 100 billion yuan. (Table II).
(Hong Kong 01 drawing)
How small is the circulation of iBond?
According to the "Hong Kong and Singapore Bond Markets" report released by the Information Research Group of the Legislative Council Secretariat earlier this year, the Hong Kong government issued only HK$100.1 billion in bonds (including iBond, silver bonds and agency bonds), accounting for 21,660 Hong Kong’s total outstanding bonds. 5% of Hong Kong dollars (data at the end of 2019).
On the other hand, despite the government’s threats to use iBond to promote the development of the local retail market, few companies actually participate in the issuance of retail bonds. For example, among the 64 bonds listed on the Hong Kong Stock Exchange for retail investors, most of them Only one issued by the Monetary Authority, the Special Administrative Region Government and the Ministry of Finance was issued by a private enterprise, and it has expired in May 2020, which shows that the relevant market is not yet perfect.
In contrast, Singapore's bond market is much more prosperous than Hong Kong.
Under the "Government Securities Issuance Program" (Singapore Government Securities, referred to as SGS), Singapore's government bonds amounted to 182.7 billion Singapore dollars (equivalent to 1,057.7 billion Hong Kong dollars), accounting for 40% of the total outstanding local currency bonds (data at the end of 2019) .
Singapore’s retail bond issuers are also more diverse. On the Singapore Exchange, there are 31 bonds available for retail investors to buy and sell, of which 10 are corporate bonds and the rest are SGS bonds.
It is worth mentioning that the investment period of SGS bonds ranges from two to thirty years, and the admission fee is only 1,000 Singapore dollars (about 5,700 Hong Kong dollars) per lot, compared with holdings of up to three years and admission of 10,000 yuan. iBond can be said to have a higher degree of freedom and a wider coverage of people, and it truly achieves the goal of promoting "retail bonds" with the power of the government.
It must be clarified that "Hong Kong 01" does not oppose iBond, nor does it oppose the government's issuance of bonds. Instead, it advocates the authorities to expand the scale of bond issuance and increase the debt ratio.
As we all know, companies that do not raise debt at all are unhealthy, and companies with a certain debt ratio can better ensure healthy capital flows and long-term investment. The same is true for public financial management.
The authorities should expand the scale of bond issuance and increase the debt ratio.
(Photo by Yu Junliang)
In fact, the SAR government has huge potential for debt issuance.
According to the statistics of the International Monetary Fund (IMF), the central government debt of 170 countries and regions around the world in 2018 has an average of 55.2% and a median of 47.3% of GDP. However, some developed regions, such as the United States, Britain, Japan and Singapore have debt ratios of 90.4% and 84.7% respectively, and the latter two have exceeded 100%. In contrast, the Hong Kong government has a debt ratio of only 6.6%, ranking second in the world, only higher than debt. Brunei, which accounts for 2.6%, believes that if the debt ratio is increased, the financial risk is relatively low.
However, the most critical question is, why does the government need to issue bonds?
Some commentators believe that the SAR government's fiscal surplus is not short-lived and does not need to borrow at all, and bonds such as iBond with a time limit of only three years and a total amount of less than 100 billion yuan are for the SAR government with fiscal reserves of up to 927.8 billion yuan. It's even more "nine cows and only a drop."
However, a reality that cannot be ignored is that even though the SAR government is sitting on huge public finances, whenever it needs to invest in the future, the authorities always "comparatively compare baht" and use infrastructure facilities with a long return period as the government bonds designed for investment. , Is able to repair this "short board" of the SAR government.
In fact, there has long been a precedent for the government's special bond issuance.
For example, in 2004, the Hong Kong government raised debts for the "Five Tunnels and One Bridge". The authorities hereby set up a "Hong Kong Five Tunnels and One Bridge Co., Ltd." wholly owned by the SAR government to issue "Tunnel and Bridge Toll Revenue Bonds" worth HK$6 billion. When it is paid off, the government only has to pay a total of 820 million Hong Kong dollars in interest, deducting the company's own income during this period, and there is not much expense to speak of.
The Airport Authority, which is wholly-owned by the Hong Kong government, also has a special bond issuance plan.
In September 2017, the AA also stated that in order to develop the three-runway system of the Hong Kong International Airport, it needs to borrow 69 billion Hong Kong dollars in the market, and its financing plan includes the issuance of various bond products.
Although retail bonds that the public can purchase have not yet been seen, the AA has raised about 11.7 billion Hong Kong dollars in institutional bonds issued in the past two months, and has also specially introduced domestic investors to participate.
The government has a precedent for special debt issuance, and its wholly-owned Airport Authority also has a special debt issuance plan.
(Photo by Luo Guohui)
In contrast, the Singapore government's treasury surplus is also "worthy" with the Hong Kong government, but its debt ratio in 2020 is as high as 111% (2020 IMF data).
As a matter of fact, the Singapore government invests the proceeds from debts in infrastructure construction, social welfare construction, industrial support and other public areas that require long-term investment. Therefore, this "small place" can introduce the "HDB housing" policy that is enviable by Hong Kong people and cultivate rankings. The university resources that have been rising year after year have created a first-class high-tech industry in Asia.
In early June of this year, the President of Singapore approved the "Significant Infrastructure Government Loan Act" (SINGA), allowing the government to borrow for important infrastructure projects that will take at least 50 years, involving up to 90 billion Singapore dollars (about 513 billion). Hong Kong dollars), the financial responsibilities need to be shared fairly among several generations.
Earlier this year, when the then Finance Minister Wang Ruijie released the Budget, he also made it clear that the proceeds from these debts will be used to build new cross-island and Jurong public transportation routes, as well as pumping stations and tidal walls to protect the country from sea level. Measures to increase the impact and so on.
Would rather the people be in debt than to raise debt for the people?
Society always needs to move forward, and debt needs to be borne by someone.
It is worth mentioning that although the SAR government’s debt ratio is extremely low, Hong Kong’s household debt ratio is extremely high.
The IMF released a report earlier this month, citing data from the Monetary Authority, stating that by the end of last year, the ratio of household debt to GDP in Hong Kong hit a record high of 90.2%, which is higher than the average of 72% in developed economies; and this ratio has been since 2007. Continue to increase, and its growth rate is the fastest among the developed economies.
Of course, many research institutions have pointed out that the high household debt ratio in Hong Kong is due to housing loans.
But this has to be thought-provoking-the SAR government would rather allow citizens to "build up debts" to expensive buildings, rather than borrowing from the government's role, such as issuing "land bonds" to raise funds to speed up land acquisition and build public housing. Protect citizens' right to adequate housing.
This is not only the government's "relief" of transferring the responsibility and pressure of social development to the citizens, it is also the failure of the government's philosophy of public finance.
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