First, to help take some heat off the yuan when it’s rising too rapidly. While authorities want to avoid a huge exodus of funds out of China, they’re eager to increase outflows somewhat to help prevent the currency from rising too fast, especially if a rally isn’t in step with growth in the economy. The southbound link should help achieve that as domestic traders will need to sell yuan to buy Hong Kong dollars or other currencies to purchase assets through the channel. This reduces the need for the PBOC to intervene directly and furthers its goal of allowing the currency to be more influenced by market demand. For Hong Kong, the southbound channel helps bolster the city’s role as the bridge to the lucrative mainland market.