Xin Lang Cai Jing·2025-08-21 11:10Core Viewpoint - The People's Bank of China (PBOC) is promoting the development of offshore bonds in Shanghai's free trade zone, transitioning from a "two ends inside" model to a "two ends outside" model, which aims to enhance the internationalization of the Renminbi and broaden financing channels for enterprises involved in the Belt and Road Initiative [1][2][4]. Group 1: Development of Offshore Bonds - The PBOC's recent meeting emphasized the need to develop offshore bonds in Shanghai, with a focus on enhancing the functionality of free trade accounts [1]. - Since June 18, 2023, major state-owned banks in Hong Kong have begun issuing offshore bonds, with the first two issuances being completed in July and August, marking a significant restart of the market [2][4]. - The first issuance by Bank of China Hong Kong was priced at 500 million RMB with an interest rate of 1.65%, while the first public issuance by Bank of Communications Hong Kong had a rate of 1.85% and a three-year term [2]. Group 2: Market Characteristics and Trends - The offshore bonds are characterized by strict adherence to the "two ends outside" principle, meaning both the issuers and investors must be from outside China, which is a shift from the previous model that relied heavily on domestic funding [5][6]. - The offshore bond market has seen a cumulative issuance of 189 bonds from 2019 to 2023, totaling over 120 billion RMB, primarily involving local government financing vehicles [4][6]. - The current trend indicates that the issuers and investors are mainly overseas branches or subsidiaries of Chinese institutions, with expectations for increased participation from foreign investors as the market matures [5][6]. Group 3: Implications for Renminbi Internationalization - The development of offshore bonds is seen as a crucial step in enhancing the Renminbi's role as a financing currency, particularly as global interest rates shift [6][7]. - The PBOC has identified the enhancement of the Renminbi's international monetary function as a key task, with a focus on improving its financing capabilities [6]. - The offshore bond market is expected to help establish Shanghai as a regional bond pricing center and attract foreign investment, thereby increasing the international influence of Renminbi-denominated bonds [5][6].