The regulatory framework for Free Trade Zone (FTZ) offshore bonds has been upgraded, with authorities providing clearer guidance on how commercial banks can participate in this market. On the 17th, the National Financial Regulatory Administration (NFRA) issued a notice concerning commercial banks' engagement in the FTZ offshore bond business within the Pudong New Area, explicitly supporting their involvement provided it complies with laws and regulations and risks are controllable. Earlier the same day, the People's Bank of China and five other government departments jointly released the "Action Plan for Developing Offshore Finance in the Shanghai International Financial Center," providing a top-level design for the construction of an offshore financial system.
Industry insiders believe the core significance of these series of rules lies in establishing a systematic institutional framework for commercial bank participation in the FTZ offshore bond business. Over the past year, market practice has led the way, but some commercial banks have sought clearer regulatory basis and operational guidance for underwriting and investment activities. The issuance of this notice marks the regulatory authorities' move to establish corresponding rule systems while "opening the door," addressing the practical needs of market institutions and reflecting a regulatory logic of prudent advancement and risk control.
New Regulations Implemented: Overall Guidance for Bank Participation
The core focus of the notice issued by the NFRA is to outline the pathways and norms for commercial banks participating in the Pudong New Area FTZ offshore bond business. The notice clarifies that commercial banks should adhere to the principles of legal and regulatory compliance, risk-based management, and prudent operation, strictly following relevant regulations such as the "Several Provisions on the Development of FTZ Offshore Bond Business in the Shanghai Pudong New Area." Regarding business positioning, it requires a focus on serving the overseas investment and financing needs of high-quality enterprises, including "going global" companies and those from countries and regions participating in the Belt and Road Initiative.
Concerning underwriting qualifications, the notice specifies that commercial banks registered in the Pudong New Area or their branches may underwrite FTZ offshore bonds, with branches requiring prior written authorization from their head office. Commercial banks may cooperate with qualified overseas underwriters to jointly provide underwriting services to issuers. On the investment side, commercial banks are required to conduct independent due diligence, implement unified credit management, prudently calculate risk-weighted assets and allocate capital based on the substance of the business, and strengthen post-investment bond management. Furthermore, banks undertaking underwriting business for the first time must report to the Shanghai Office of the NFRA, with foreign bank branches following similar requirements.
Industry sources pointed out that the notice effectively connects with the previously issued "Several Provisions on the Development of FTZ Offshore Bond Business in the Shanghai Pudong New Area." "From local legislation to departmental regulations, the institutional framework for FTZ offshore bonds is being solidified layer by layer, providing a more stable and predictable regulatory environment for market participants."
Several experts interviewed affirmed the highlights of this notice. A senior banking analyst noted, "Although several overseas branches of banks have issued FTZ offshore bonds over the past year, domestic commercial banks, especially those registered in the Pudong New Area, urgently needed clearer institutional basis for systematically participating in underwriting and investment. This notice fills that critical gap."
A head of the financial markets department at a major state-owned bank highlighted the clarity on underwriting qualifications as a key feature. "The notice allows commercial banks registered in the Pudong New Area and their branches to underwrite FTZ offshore bonds and permits cooperation with qualified overseas underwriters. This means commercial banks can leverage resources and channels from both domestic and international markets to provide more comprehensive services to issuers. Simultaneously, requirements like head office authorization and risk-weighted asset calculation reflect the high importance regulators place on risk control while opening access."
An investment banking professional from a joint-stock bank focused on the investment-side regulatory requirements. "Independent due diligence, unified credit management, and prudent capital allocation—these requirements essentially integrate FTZ offshore bond investment into banks' regular credit risk management framework, rather than treating it as a special business. This is beneficial for banks to control risks and helps the market form unified pricing and risk control standards."
A foreign bank also commented from a participation perspective, stating that the clause stipulating "foreign bank branches shall refer to and implement these rules" carries signaling significance. "This actually reserves institutional space for foreign banks to participate in the FTZ offshore bond market, helping to attract more international financial institutions and enhance the market's internationalization and diversification."
One-Year Review: From Institutional Innovation to Ecosystem Building
In June 2025, Pan Gongsheng, Governor of the People's Bank of China, announced the "development of FTZ offshore bonds" at the Lujiazui Forum. In July 2025, Shanghai Clearing House officially launched Shanghai FTZ offshore bonds, achieving the world's first transaction. On December 30, 2025, the Standing Committee of the Shanghai Municipal People's Congress issued the "Several Provisions on the Development of FTZ Offshore Bond Business in the Shanghai Pudong New Area." The continuous improvement of the institutional framework and ongoing infrastructure development have laid a solid foundation for market growth.
Ming Ming, Chief Economist at CITIC Securities, pointed out several distinctions in the operation of FTZ offshore bonds over the past year compared to previous practices: issuers have shifted from being dominated by local government financing vehicles to overseas branches of Chinese financial institutions and foreign issuers; the investor structure has moved from domestic related-party funds to overseas institutional investors, incorporating FTU (Free Trade Unit) funds; and the custody and clearing architecture aligns with international market practices.
Market data confirms this transformation. Ten FTZ offshore bonds have been issued, with a total issuance size of approximately 3.7 billion yuan, nine of which are registered and custodied at Shanghai Clearing House. Over the past year, entities including Bank of China Hong Kong Branch, China Construction Bank New Zealand Subsidiary, Industrial and Commercial Bank of China Singapore Branch, Shanghai Pudong Development Bank Hong Kong Branch, and Bank of Communications Hong Kong Branch have issued FTZ offshore bonds in currencies including RMB and HKD. On June 15, Bank of China launched the market's first FTZ offshore bond rolling issuance plan, completing its initial issuance of 500 million yuan with a 9-month tenor and a coupon rate of 1.58%.
In May 2026, Bank of Communications Hong Kong Branch issued a 600 million yuan FTZ offshore bond, marking the first time FTU investors participated in the primary issuance. The FTU is a dedicated account system established by domestic banks for conducting offshore business. Industry insiders believe it connects the FT account system with the FTZ offshore bond market, allowing offshore RMB funds held within China to be invested in this market compliantly, forming a new, more stable pattern with parallel funding sources from "overseas funds + FTU funds."
From a market infrastructure perspective, based on a multi-level custody architecture aligned with international practice, Shanghai Clearing House has opened accounts for nearly 40 overseas investors, FTU investors, and overseas sub-custodians. A head of a foreign custody institution stated that this arrangement is highly consistent with the operational logic commonly used in European and American markets, eliminating the need to build new compliance systems specifically for participating in FTZ offshore bonds.
The "Action Plan for Developing Offshore Finance in the Shanghai International Financial Center" released earlier today further specifies goals: to preliminarily establish an institutional system adapted to offshore financial business by the end of 2027; to form a relatively mature offshore financial system and legal framework by the end of 2030; and to become a strategic hub for the high-level coordinated development of offshore and onshore finance by the end of 2035.
The NFRA's notice clarifying the participation pathways for commercial banks, combined with the top-level design of the offshore finance action plan, provides new institutional momentum for the future development of FTZ offshore bonds. As regulatory rules become clearer, FTU funds continue to flow in, and regular issuance mechanisms mature, a key challenge for the next phase will be how FTZ offshore bonds can expand supply, invigorate trading, and improve pricing while adhering to their "both ends outside" positioning.
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