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Recently, I discovered a new situation: in recent years, we have been continuously expanding the scale of the Hong Kong offshore market.
The trigger for this was on April 15, when the Ministry of Finance announced plans to issue RMB 15.5 billion in government bonds in Hong Kong.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OtgtWj9lVcLYGAwxgo7Tg5Ie7buw5y47tZ6lXEMrpzKasAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OtgtWj9lVcLYGAwxgo7Tg5Ie7buw5y47tZ6lXEMrpzKasAA/641"/>
Readers may not feel this, but there are two points that seem very counterintuitive to me.
First is the scale. In February, the Ministry of Finance had already issued RMB 14 billion, and with this RMB 15.5 billion, the scale can be said to be the highest since 2023.
Second is the interest rate. Currently, the RMB in Hong Kong is more expensive than domestically (comparing the interbank market rates of offshore and onshore), making the cost of borrowing through bond issuance higher.
In other words, the counterintuitive aspect of this matter is that the Ministry of Finance is choosing to borrow on a large scale in Hong Kong instead of utilizing the cheaper domestic funds.
With this question in mind, I searched for past information and found that in recent years we have been continuously expanding the &#34;asset pool&#34; of offshore RMB in Hong Kong—&#34;dim sum bonds.&#34;
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OzJrM2sf_3S8czd6VsCU4ShYN-uxwatYjfQ9v4syE0M_0AA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OzJrM2sf_3S8czd6VsCU4ShYN-uxwatYjfQ9v4syE0M_0AA/641"/>
Since 2018, this scale has been continuously rising, especially after 2022, it has experienced explosive growth, reaching over RMB 1.5 trillion.
Additionally, consider:
In 2021, the southbound bond connect was launched, with plans for expansion in 2025, allowing non-bank financial institutions to participate.
In 2025, domestic tech companies like Alibaba and Tencent, as well as foreign institutions like the National Bank of Saudi Arabia, JP Morgan, and Nestlé, will issue offshore RMB bonds in Hong Kong to raise funds.
Since 2022, the central bank has been issuing offshore central bank bills more frequently and regularly.
......
This leads me to believe that the Ministry of Finance's bond issuance in Hong Kong is essentially similar to the central bank's issuance of central bank bills in Hong Kong, both intentionally expanding the asset pool of the Hong Kong offshore market. The cost is secondary; the key is to address the lack of investment options for offshore RMB holders and to expand the influence of the RMB.
At the same time, I also looked into the scale of offshore RMB.
Surprisingly, it has also been expanding since 2018 and has rapidly ballooned after 2022, with offshore RMB deposits now exceeding RMB 1 trillion (just in Hong Kong, excluding places like Singapore and London)
In other words, in recent years, not only has the scale of offshore RMB in Hong Kong been continuously expanding, but the related offshore RMB assets have also been accelerating in growth.
2
Why is this happening? Is this a temporary phenomenon or will it become a new long-term trend?
The author believes that this is largely due to the long-term interest rate differential between China and the United States, and coupled with increasing conflicts and our efforts to promote the internationalization of the RMB, this situation is very likely to become a long-term trend.
Since the second half of 2022, our interest rates have been declining while U.S. interest rates have been rising (currently hovering at high levels). This has resulted in the same company being able to save nearly 2% in interest by borrowing RMB in Hong Kong compared to borrowing in USD.
Additionally, with the RMB continuously appreciating against the USD by 2025, the average coupon rate of dim sum bonds is about 3.3%, while the average rate of USD bonds has reached as high as 5.9%, expanding this interest rate differential to 2.6%.
Moreover, in recent years, there has been a deleveraging of local governments and real estate in China. Even though borrowing in USD may allow for better global investments, the significant interest rate differential has made the willingness to borrow in RMB even stronger.
In other words, as the interest rate differential between China and the U.S. expands (with the yen also in a rate hike cycle), more and more people are borrowing in RMB, and the RMB is beginning to expand rapidly as a global financing currency.
Perhaps noticing this opportunity, we have been aggressively promoting the internationalization of the RMB in recent years.
The expansion of the offshore RMB asset pool (dim sum bonds) has effectively addressed the issue of a large amount of offshore RMB deposits accumulated from trade settlements having no good place to go. At the same time, this has allowed the RMB to leap from being a &#34;trade settlement currency&#34; to an &#34;investment currency&#34; and even a &#34;reserve currency.&#34;
This is somewhat similar to the Eurodollar, where the dollar uses Eurodollars to expand its influence in Europe, and we are also cultivating Hong Kong RMB to expand its influence in the offshore market.
As RMB interest rates continue to decline, the interest rate differential will only strengthen the position of the RMB as a financing currency, and as conflicts deepen, the willingness to open a path away from the USD financial system will also become stronger.
Both of these points will reinforce the closed loop of &#34;trade settlement output of RMB → purchasing dim sum bonds for investment appreciation → issuers borrowing in RMB for investment expansion → economic growth feeding back into asset returns,&#34; promoting the influence of the RMB.
Therefore, the author boldly asserts that in the coming years, even decades, the scale of RMB in the Hong Kong offshore market will continue to expand exponentially, with more offshore RMB financial assets and accompanying institutional openings further enlarging.
This is a strategic layout taking advantage of the situation!
3
So, how will this reshape our financial market, and what should ordinary investors pay attention to?
The author believes that the RMB will become another major financing currency following the yen and the Swiss franc, and it will become an important tool for global arbitrage trading! This change will create structural depreciation pressure on the RMB while also serving as a safe-haven tool during global systemic crises, leading to appreciation.
The reasoning is simple.
When a currency is used by more people as a financing currency for arbitrage trading, it means that more people are borrowing in RMB to exchange for other high-yield currencies for investment. This continuous selling pressure will keep the RMB exchange rate below the fundamental equilibrium level in the long term (although many institutions believe that the current RMB exchange rate is undervalued)
The Japanese yen is the best example. After the yen became a major funding currency in the late 1990s, it remained weak for a long time despite Japan's huge trade surplus.
Moreover, it is particularly noteworthy that when a crisis strikes, arbitrage traders will buy back the funding currency to close their positions, leading to a sudden appreciation of the local currency. For instance, the yen in 2022 and 2024.
These two changes are what domestic investors holding RMB need to pay close attention to in the future.
For ordinary investors, there are two key opportunities to watch for:
First, during the &#34;reversal of carry trade.&#34;
Since funding currencies are particularly sensitive to global risk sentiment, exchange rates can be easily influenced by concentrated arbitrage selling and buying. The following three situations are good times for reverse trading:
Extreme positions (net shorts reaching historic highs)
Policy turning points (when central banks start raising or lowering interest rates)
Risk events (pandemics, stock market crashes, etc.)
Second, appropriately allocate some offshore RMB bonds to enhance returns.
In the future, the offshore RMB assets in Hong Kong will definitely increase, especially bonds. However, since the RMB exists in two different markets, when domestic RMB interest rates are lower than those in Hong Kong, it is still quite good to allocate some appropriately.
For example, currently, the interest rate spread between offshore and onshore government bonds is 0.5%, resulting in a nearly 30% difference in total yield over a year (for instance, a 10-year government bond, 0.56%/1.8% = 31%).
In summary, the signals indicating that we are continuously expanding and strengthening the offshore RMB market in Hong Kong are already very clear, and the status of the RMB as a funding currency will continue to strengthen as domestic interest rates decline. In the future, it is essential to pay more attention to investment opportunities in the Hong Kong RMB market.
Source: Mizhai (ID: MizhaiPlus)

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Recently, the Ministry of Finance plans to issue RMB 15.5 billion in government bonds in Hong Kong, marking the expansion of the offshore market in Hong Kong. Despite the high borrowing costs, this move aims to expand the asset pool of offshore RMB and address the investment needs of offshore RMB holders. Since 2018, offshore RMB deposits and related assets in Hong Kong have grown rapidly, indicating that this trend may continue

New situation! Pay more attention to RMB opportunities in Hong Kong