Shanghai is launching a comprehensive subsidy program to revive its offshore bond market, offering up to ₹2.2 crore ($327,000) per bond issue to cover advisory, legal, and banking fees. According to reports from The Economic Times, the Shanghai Financial Regulatory Bureau's initiative targets both domestic and foreign issuers, with the most generous rebates reserved for high-profile foreign entities such as central banks. The subsidies also extend to green bonds and bonds utilizing financial innovations like the digital yuan, as reported by sources familiar with the plans.
The subsidy program represents a significant effort to transform Shanghai's free trade zone, which launched 13 years ago but has failed to attract meaningful foreign participation. As reported by The Economic Times, the offshore bond market opened in 2016 but has remained largely a fundraising channel for Chinese borrowers. The initiative comes as Beijing's promotion of yuan internationalization finds its most traction in debt markets, where low rates are driving record issuance. PBOC Governor Pan Gongsheng previously vowed to develop Shanghai into a hub for offshore financial services at last year's Lujiazui forum.
The central bank is providing additional support by allowing onshore banks to purchase FTZ bonds through specially administered accounts. According to sources familiar with the matter, the PBOC will manage such investments using a 50% cap on onshore money in a single bond to ensure high-quality market development. This regulatory support represents a significant shift from current rules requiring qualified investors to be based offshore. Seminars promoting the market to issuers, banks, and brokerages were held earlier this month in Shanghai and Shenzhen, as reported by sources and invitation letters.
The FTZ bond market offers compelling yields for international issuers, with a three-year bond from Shanghai Electric Group's overseas unit issued earlier this month featuring a 1.8% coupon. This compares favorably to an effective yield of around 5.5% for the ICE BofA U.S. BBB corporate bond index. As reported by The Economic Times, the subsidy support will ensure FTZ bond issuance costs are no higher than those of panda bonds, making the market more attractive to international investors.
Since the market reopened last year after a three-year lull, only ₹71 crore worth of debt has been raised, with all but one issuer being offshore arms of Chinese banks and brokerages. According to TF Securities data cited by The Economic Times, LGFVs still account for 78% of the FTZ bond market. The subsidy program aims to complement existing instruments like dim sum bonds and panda bonds in providing offshore yuan liquidity while promoting cycling of yuan capital. Industry experts view the FTZ bond market as becoming part of China's financial infrastructure supporting Beijing's broader yuan internationalization goals.
