rebooted FTZ offshore bonds are offshore in all but geography; Beijing supplies the architecture, the market must supply the scale
Beijing is re-engineering its offshore bond market within its own borders, in Shanghai’s free trade zone.
Free Trade Zone (FTZ) offshore bonds, nicknamed ‘pearl bonds’ in their first incarnation, are bonds with a twist: issued inside the zone, registered and cleared by PRC institutions, yet governed by international rules and ringfenced from the domestic financial system. In law and in function they behave like bonds issued abroad; in geography they stay grounded in Shanghai.
A first version, running since 2016, was halted in 2023 after domestic borrowers turned it into a back door for raising funds at home. The relaunch came on 18 June 2025, one of eight opening measures PBoC governor Pan Gongsheng 潘功胜 announced at that year’s Lujiazui Forum, under a ‘two ends outside’ (两头在外) principle: the borrowers issuing the bonds and the money buying them must both now come from outside the Mainland, whether foreign firms or the offshore arms of PRC ones. The aim was to restore the market to its original purpose, cross-border financing in substance as well as form.
The ambition is twofold: more renminbi for PRC firms doing business abroad, and more RMB-denominated assets for international holders of the currency, the two-way flow Beijing sees as helping the currency’s internationalisation. The zone supplies the workaround: an offshore ‘ringfence’ where both can happen without dismantling PRC capital controls.
why Shanghai
Beijing’s case for Shanghai is pragmatic. Compared with Hong Kong’s established offshore market, issuance in the zone promises closer integration with Mainland financial infrastructure and, potentially, lower regulatory and funding costs. The model is framed as complementing Hong Kong rather than displacing it, serving firms that straddle onshore and offshore financing needs. The zone doubles as a controlled ‘sandbox’, a place to test offshore finance where Beijing controls the architecture more directly than in Hong Kong.
The market remains marginal for now: some 7.7 percent of offshore RMB bonds outstanding as of June 2025, worth C¥118.6bn (~US$16.5bn), of which only about 4 percent sits under the new scheme. Beijing wants more: the action plan issued at the 2026 Lujiazui Forum on 17 June 2026 by PBoC, four other regulators and Shanghai’s government calls for further growth, echoing its broader drive to insulate finance from dollar constraints and support PRC firms’ overseas expansion.
how FTZ offshore bonds work
Issuance runs under Reg S or Rule 144A, the standard US rulebooks for selling bonds to international buyers without registering with US regulators; bonds are predominantly RMB-denominated and list on overseas exchanges such as Macao or Singapore.
The reboot closes the earlier loop. The chief culprits were local government financing vehicles, whose borrowings, in Beijing’s view, piled up hidden financial risks. Issuers and investors must now be overseas entities or overseas subsidiaries of PRC firms. The money moves through dedicated plumbing.
Investors pay through FT (free trade) accounts, a class of bank account confined to the FTZ; Mainland banks service them through FTUs (free trade units), separate ledgers kept apart from their domestic books. Since 2026, the banks may also invest in the bonds using the capital in those units, within set limits. Any funds finding their way back into the Mainland must comply with cross-border capital flow rules. This dual onshore-offshore character makes them, in the words of Zhang Lin 张林 Far East Credit Rating, ‘an onshore offshore bond’: physically inside the PRC, functionally outside it.
how offshore FTZ bonds work
financing firms going global
In announcing the reboot, PBoC was explicit about its objectives: widening financing channels for outbound PRC firms, particularly those operating in BRI (Belt and Road Initiative) countries. For borrowers, RMB-denominated issuance is some two percentage points cheaper than dollar debt, an edge that holds once interest differentials, currency moves and issuance fees are taken together, notes Wang Kun 王昆 Southwestern University of Finance and Economics. A broader, higher-quality issuer base should also cut underwriting risks for PRC banks, adds Wang.
Shipping finance is the early test case. Greek shipowners’ finance executives signed agreements on 23 May 2026 with BoComm (Bank of Communications), Shanghai Pudong Development Bank and securities house Guotai Junan International for offshore bond services covering the full chain, with owners citing the instrument’s tight link with PRC shipyards and lower costs than Nordic and US shipping bond markets.
Shipping serves as the ‘real economy’ foundation, offshore finance provides the policy lever; RMB internationalisation is the endgame, argues Xu Chao 须超 BoComm. Issuance is likely to concentrate over time among overseas PRC champions linked to the BRI with stable offshore revenues and solid external funding needs (large state-owned firms and PRC multinationals), expects Zuo Yiming 左一鸣 CSPI Ratings, noting that a bond market with longer maturities, higher credit and offshore funding could take shape and further the RMB’s global role.
Shanghai and Hong Kong
Hong Kong’s offshore RMB bonds (dim sum bonds) tripled in annual issuance between 2022 and 2024, to C¥1.4tn (~US$194bn), and 2025 set another record, absorbing some of the demand FTZ offshore bonds might serve. So why is Beijing building a parallel market in Shanghai?
The two serve complementary needs, explains Xu Chao. FTZ offshore bonds align with international standards while sitting closer to PRC firms going global: investors, infrastructure and legal support are more familiar. Issuance in Shanghai is also cheaper and more flexible, with lighter disclosure, settlement and capital-flow requirements than Hong Kong.
Funds flow through Shanghai’s dedicated FT account system, which permits some two-way movement between FT accounts in the FTZ and accounts outside the zone, a degree of integration with Mainland systems that Hong Kong, an offshore market under separate jurisdiction, cannot offer. Offshore RMB liquidity inside FT accounts can also be channelled into productive use rather than sitting idle.
Hong Kong remains the deeper, more liquid pool, intermediating global RMB activity through established channels like Bond Connect, which lets international investors trade Mainland bonds through Hong Kong. Shanghai’s role is narrower but more deliberate: a venue where Beijing controls the market architecture directly, geared toward financing PRC firms’ overseas expansion.
There is also the benefit of ‘learning by doing’: PRC banks, regulators and other institutions build the expertise needed to compete as global financial institutions further down the line. The hope is that PRC rating agencies may gain more influence over offshore RMB pricing and help reduce distortions in RMB risk premiums, notes Xing Lei 邢磊 Dagong Global Credit Rating.
A panel of leading PRC offshore finance pundits proposed early in 2025 a ‘dual-hub’ model: Hong Kong handling high-end business such as derivatives and cross-border wealth management, Shanghai concentrating on real-economy and technology financing. Policy has since leaned that way: Hong Kong has pushed ahead in frontier areas such as real-world asset tokenisation and stablecoins. As Liu Xiaochun 刘晓春 Shanghai Financial Institute puts it, world powers from Britain to the United States built global firms on the back of strong domestic financial centres; Hong Kong, mature as it is, cannot alone meet the needs of PRC firms going global, warranting Shanghai to fill the gaps.
ringfenced, for now
Shanghai’s offshore bond market still lacks the basics: international credit ratings, a liquid secondary market (somewhere to sell the bonds on after buying them), better disclosure rules, and bond maturities long enough to tempt institutional investors like insurers and pension funds. Gaps are starting to close: the market’s first secondary trade came in February 2026 via ICBC’s Hong Kong subsidiary, and a C¥600 million (~US$83 million) BoComm Hong Kong issue in May 2026 was the first to bring FTU investors into a new issue. Issuance still leans heavily on PRC banks’ own offshore branches; widening the issuer base would help it scale.
Meanwhile, old-scheme bonds worth some C¥68bn (~US$9.4bn), most issued in 2022 with three-year maturities, fall due in 2026; the old market is shrinking faster than the new scheme can replace it. Regulatory grey areas remain too, according to the PRC’s own financial firms. In short, FTZ offshore bonds need the rest of offshore finance built around them to take off, the gap Beijing’s June 2026 blueprint calls for filling.
Trade and geopolitical pressures will give Beijing reason to press on regardless. Washington’s threatened curbs on PRC currency and cross-border payments make PRC financial resilience all the more urgent. US strength, interprets Miao Yanliang 缪延亮 China International Capital Corporation, lies in a ‘sustainable cycle’ of dollar outflows and inflows. Growing trade settlement in RMB, he argues, is only the opening move; long-term investment and reserve holdings are the decisive one.
Built on the ‘two ends outside’ model, FTZ offshore bonds are designed for such two-way flows: offshore RMB moves into the bonds, finances BRI projects or PRC exports, and cycles back. On this reading they could help the RMB graduate from settlement tool to investment currency in its own right.
The catch is that the ringfence keeping the market honest is also what keeps it small: the onshore demand that swelled the old scheme is locked out, yet the door is not fully shut, since local government financing vehicles’ offshore subsidiaries still qualify as issuers, and some PRC analysts already read the reboot as partial relief for their funding squeeze. So far Beijing has chosen honest over big; the June 2026 action plan says it wants both.
‘inside’ voices
Lian Ping 连平 | China Chief Economists Forum chair
A year into the reboot of FTZ offshore bonds, Lian points to gains, including a reshaped model funded by offshore capital and FTU money, and a shift to rolling issuance. But he flags persistent weaknesses too: a narrow issuer base, thin secondary-market liquidity and an unbalanced investor mix. He argues for upholding the ‘two ends outside’ principle to ringfence risk, alongside coordinated progress across bond supply, investment, trading and regulation. With the external environment volatile, he sees offshore liquidity regulation as the linchpin: monitoring cross-border flows for anomalies, curbing arbitrage, with central authorities leading enforcement and Shanghai building its own risk-monitoring system. This ‘full-chain’ approach, he says, will keep offshore finance growing in a stable, orderly way.
A former chief economist at Bank of Communications, Lian now chairs the China Chief Economists Forum. His research has long centred on offshore finance, exchange rates and international financial centres, and he has been a regular voice in expert consultations convened by the State Council. A PRC leader in offshore finance research, he oversees the drafting of the ‘Offshore Finance Index Report’, published at the China International Finance Forum. Lian has called for introducing more offshore renminbi assets with a fuller range of maturities and better hedging tools for investors. The PRC’s offshore finance push, he argues, should now focus less on volume and more on building a reliable, full-service hub where global capital feels safe to park and grow.
Shi Xiaoshan 史晓姗 | CSCI Pengyuan senior researcher
In the early stages of the FTZ offshore bond market’s growth, Shi suggests bringing in international rating agencies at the issuance stage to assign credit ratings, which would boost overseas investors’ willingness to participate and improve investment efficiency. On maturity structure, she argues that issuing more medium- and long-term bonds would help match long-term investment demand, drawing in pension funds, insurance capital and other long-horizon capital. This would strengthen the stability of RMB assets and improve the role FTZ bonds play in the offshore RMB market, adds Shi.
A senior researcher at CSCI Pengyuan, a PRC rating agency covering corporate and financial-institution bonds, structured products, offshore issuers and corporate governance ratings, Shi is a frequent media commentator whose work has ranged across bond defaults, local government financing vehicles and property-sector credit risk.
Deng Zhichao 邓志超 | Shanghai Academy of Social Sciences Institute of World Economy assistant research fellow
Beijing’s push for offshore finance is about expanding non-resident RMB trading offshore, which is central to RMB internationalisation, argues Deng. He points to three roles offshore markets play: a reservoir of liquidity, a testing ground to establish the RMB’s own pricing power and a channel for cross-border investment and financing. The currency is now moving beyond its role in trade settlement to become an investment currency in its own right, he notes, with offshore markets set to play a greater role in Belt and Road financing and commodities trade. Deng expects cross-border RMB use to continue climbing, opening more opportunities for Shanghai FTZ offshore bonds in the process.
Besides his duties at the Shanghai Academy of Social Sciences’ Institute of World Economy, Deng also serves as deputy secretary-general of the Shanghai Economic Society. A veteran of both the People’s Bank of China and Bank of Communications, he has focused his research on offshore finance, monetary policy and the US economy. He is a vocal champion of Shanghai’s offshore finance ambitions, arguing that the effort amounts to an ‘institutional firewall’: a way to draw in foreign capital for trade and investment without exposing the Mainland’s still only partly open capital account to the rough currents beyond it.