There is a huge market demand for developing offshore finance
"The offshore financial market is one of the most important international financial markets worldwide, providing China with more convenient investment and financing channels, and promoting high-quality economic development." Jing Jianguo, director of the Offshore Finance Research Institute of the Financial Development Center of the Shanghai Chief Economist Forum, recently stated at the 20th China International Financial Forum that with the continuous growth of China's cross-border investment and financing scale International capital flows are becoming more frequent, and offshore finance can better meet the needs of Chinese institutions and enterprises in cross-border settlement and investment and financing, effectively improving China's global competitiveness, and promoting the cross-border flow and optimized allocation of global funds for Chinese institutions and enterprises.
China has always provided strong policy support for offshore finance. In 1997, the People's Bank of China issued the "Management Measures for Offshore Banking Business", and in 1998, it also issued the "Implementation Rules". In April 2015, the former China Banking Regulatory Commission issued a notice on the supervision of the banking industry in the China (Shanghai) Pilot Free Trade Zone, which allowed banks with offshore banking licenses in the pilot free trade zone to operate offshore banking services. In April 2021, the People's Bank of China and four other ministries issued the "Opinions on Financial Support for Hainan's Comprehensive Deepening of Reform and Opening up", officially launching the "Free Trade Port+Offshore" model. In July of the same year, the Central Committee of the Communist Party of China and the State Council issued the "Opinions on Supporting the High level Reform and Opening up of Pudong New Area to Build a Leading Zone for Socialist Modernization Construction", which clearly proposed the construction of an offshore financial system that matched the Shanghai International Financial Center. In February 2023, the People's Bank of China and four other ministries issued guidance on the development of offshore financial service systems in Hengqin and Qianhai.
Developing offshore finance requires leveraging the experimental functions of free trade zones. In order for the free trade pilot zone to meet international standards for elevation levels, there needs to be a good breakthrough point to promote various policy reforms, and offshore finance is a very good breakthrough point and carrier. One reason is that financial operating rules are one of the economic and trade rules, and they themselves are an important part of benchmarking international rules. The second is that financial operating rules are also the highest standard of economic and trade rules. If the financial operating rules run very well, high international standards can naturally be aligned.
Not only policy support, there is a huge market demand for the development of offshore finance in China. On the one hand, Chinese multinational enterprises have a demand for offshore financial services. With the development of the Chinese economy, a group of highly competitive multinational enterprises have emerged in China. These multinational enterprises rely on China's huge market and actively explore the global market, requiring offshore financial services. On the other hand, foreign multinational corporations also have a demand for offshore financial services. The reason is that China is the world's largest manufacturing country, and it is profitable to purchase and sell from China to the world; Secondly, China may become the world's largest economy in the future, which also means that China will be the world's largest consumer market; Thirdly, the Chinese economy is operating steadily, and RMB assets have strong attractiveness.
In recent years, the offshore RMB market has experienced significant development. According to the offshore RMB index ORI released by Bank of China, the ORI in 2014 was 1.13%, and in the first half of this year, the ORI reached 1.67%. At the end of 2022, the balance of RMB deposits in the main offshore market exceeded RMB 1.5 trillion. Since the rapid increase in financing costs of the US dollar in 2022, the issuance scale of the offshore RMB market has also seen a relatively rapid growth. At present, the Dim sum bond market in Hong Kong is a major part of the offshore RMB bond market, and the issuance of the Pearl Bond in the Shanghai Free Trade Zone has also accelerated this year.
The offshore RMB bond market has good development potential in the context of a diversified global pattern, and there is still considerable room for expansion in the future. At the same time, there is also a lot of room for improvement. Firstly, the types of offshore RMB bonds, issuers, and maturity varieties are still relatively single, and need to be continuously enriched to attract more international investors. Secondly, the derivatives market in the offshore RMB bond market is currently relatively blank, making it difficult for funds to fully allocate maturity and hedge risks. Furthermore, in the offshore RMB bond market, nearly half of the bonds do not have any credit rating, and this aspect also needs to be improved.
The current urgent task is to allow more institutions to conduct offshore financial services in both domestic and foreign currencies. In addition, China needs to improve its financial system, further optimize its financial structure, develop multi-level capital markets, promote the diversification of financial products and services, and solve the problems of various non bank financial institutions in China's financial system. Developing offshore finance is a systematic project, and it is difficult to solve all problems at once. It requires a holistic thinking and step-by-step action planning.