FX.co ★ China Plans Broader Access to Offshore Bonds

China is reportedly contemplating increasing the quota for its Southbound Bond Connect program to CNY 1 trillion, indicating a more robust initiative to liberalize financial flows and enhance access to offshore bonds. The discussions among regulators include a proposal for a new CNY 500 billion annual allocation specifically designed for non-bank financial institutions, such as mutual funds and insurers, which are currently not permitted to participate. If this proposal is approved, these entities would be allowed to invest in international bonds traded in Hong Kong, including those denominated in U.S. dollars. Although a final decision has not yet been reached, the proposal is in line with Beijing’s broader strategy to open up its financial system, encourage two-way capital flows, and elevate the global standing of the yuan. Additionally, this could lead to increased demand for offshore yuan, or "dim sum" bonds, which frequently offer higher yields than their onshore counterparts. Discussions regarding the inclusion of securities firms and insurers began in January, based on earlier exchanges between the People's Bank of China (PBoC) and the Hong Kong Monetary Authority.