Of the hundreds of thousands of people who cross the border between mainland China and Hong Kong every day, many pay with the national currency – the yuan, also known as the renminbi – at turnstiles with the tap of a smartphone.

Yet once that currency passes over the same border and into a Hong Kong bank account, it is treated differently from the renminbi on the mainland. As offshore yuan, or CNH, it falls outside mainland China’s capital controls and trades at a market-driven exchange rate, like the US dollar, the British pound and the Japanese yen.

That distinction underpins Hong Kong’s position as the world’s largest offshore yuan hub, where the currency moves through global banks, bond markets and stock exchanges.

About 76 per cent of offshore yuan payments by value were handled by Hong Kong in June, according to the Society for Worldwide Interbank Telecommunication (Swift), the primary messaging system for international transactions.

The city’s banks held about 1.1 trillion yuan (US$164.3 billion) in deposits at the end of August, according to the Hong Kong Monetary Authority (HKMA).

City officials want to build on that base. In his 2024-25 budget speech, Financial Secretary Paul Chan Mo-po said the government would “press ahead with the development of an offshore renminbi ecosystem” to support the yuan’s internationalisation.

That aim was reaffirmed on September 16, when Chief Executive John Lee Ka-chiu unveiled the city’s first five-year plan alongside his policy address. The plan puts the offshore yuan business first among its financial priorities.

This raises a question for market participants: can a gateway evolve into a self-sustaining ecosystem? In such a system, yuan arriving in the city would be lent, invested, hedged and then reinvested rather than simply passing through. We want to bring the offshore renminbi to lifeJulia Leung Fung-yee, Securities and Futures Commission From yuan reservoir to full financial system For two decades after Hong Kong banks began taking yuan deposits in 2004, the city worked largely as a reservoir. Offshore yuan pooled there, to be used for cross-border trade, bonds and currency exchange.

The market has since moved beyond holding balances. Hong Kong’s listed dim sum bond issuance reached 266.9 billion yuan (US$40 billion) as of late September, up 13.8 per cent year on year, according to data from Hong Kong Exchanges and Clearing (HKEX).

Last year, the city’s issuance of the bonds – denominated in yuan but issued outside the mainland – surpassed 1.1 trillion yuan.

Regulators see an opening for greater use of the yuan as geopolitical tensions increase, pushing some sovereign wealth funds and private investors to diversify. Yuan assets such as Beijing-backed bonds are becoming an alternative to dollar assets.

“We want to bring the offshore renminbi to life,” said Julia Leung Fung-yee, chief executive of the Securities and Futures Commission, in a June interview with Shanghai Securities News at the Lujiazui Forum.

She said Hong Kong was building investment platforms across equities, bonds and wealth management to broaden the offshore yuan market and encourage long-term foreign holdings.

The foundation is liquidity. The People’s Bank of China has a standing swap line with the HKMA worth 800 billion yuan and regularly issues central bank bills in the city.

In July, the HKMA also raised the quota of its RMB Business Facility, which supplies yuan funding to banks. The amount went from 200 billion to 500 billion yuan, with terms of up to three years.

On the asset side, the government is among primary issuers. In September, it priced a 7.5 billion yuan five-year digital green bond at a 1.65 per cent coupon. It was the largest tranche of a HK$20 billion (US$2.54 billion) four-currency offering that the government called the world’s largest digital bond issuance.

Bank of China (Hong Kong), one of the city’s four largest banks, said in a statement on September 30 that it had added 14 yuan bonds with different maturities and yields and 15 funds with yuan share classes, offering hedged and unhedged, accumulating and dividend-paying options.

Several popular schemes also tie the city’s market to the mainland. Stock Connect allows investors on each side to trade the other’s shares, while Wealth Management Connect enables Greater Bay Area residents to buy investment products from financial institutions across the border.

Hedging tools have followed. HKEX launched five-year China government bond futures on August 3, the only such contract offered offshore.

Swap Connect, which allows overseas investors to hedge mainland interest-rate risk, cleared 1.7 trillion yuan in the second quarter, up almost 48 per cent from a year earlier, according to Shanghai Clearing House data. Why Hong Kong?

Analysts said Hong Kong offered Beijing an internationally connected financial platform, a test bed for financial liberalisation and a main gateway for mainland companies expanding overseas.

As China sought wider global use of the yuan without lifting cross-border capital controls, Hong Kong has become “an essential intermediary” for that process, said Bruno S. Sergi, an instructor at Harvard University specialising in development economics and emerging markets.

As US-China competition has expanded into global payments, clearing architecture and heightened sanctions risks, the city’s structural advantages have grown in importance, he added. These include free markets under common law and its status as a special administrative region under the “one country, two systems” principle.

Wilson Chan Fung-cheung, an adjunct professor at City University of Hong Kong and a 30-year banking veteran, said the city has been the main proving ground for Beijing’s financial liberalisation for more than two decades.

He cited the gradual opening of China’s capital markets as evidence of the city’s bridging role, from the Hong Kong-only Renminbi Qualified Foreign Institutional Investor scheme to today’s multi-asset Connect schemes.

Huang Yiping, dean of the National School of Development at Peking University, said at a Bund Summit round table in Shanghai last week that China should open its financial markets gradually and also consider greater use of Hong Kong’s offshore market.

“Ultimately, non-residents need to have the opportunity to trade and hold Chinese assets,” Huang said. “Before the onshore market is fully opened, the offshore renminbi market could offer a supplement.”Beijing has also backed that role. PBOC Governor Pan Gongsheng said in a keynote speech at the Financial Street Forum in Beijing last week that the central bank would support an offshore yuan market centred on Hong Kong, with London, Singapore, Dubai and other financial centres developing in coordination.

He said the PBOC would also build a stable, multilayered system to supply yuan liquidity to the offshore market and promote the use of yuan bonds as collateral internationally.

In July, Pan told the Hong Kong FIC & Bond Connect Summit that China would increase its foreign exchange reserve allocations in Hong Kong.

He also announced that the annual net investment quota for the Southbound Bond Connect scheme, which lets mainland institutions buy offshore bonds, would increase from 500 billion yuan to 800 billion yuan.

Mainland companies are also a large source of business. “A+H” listings, in which companies already listed on the mainland add a Hong Kong listing, accounted for 58 per cent of first-half initial public offering proceeds, according to KPMG.

Central state-owned enterprises are also building offshore treasury hubs in the city. State Power Investment Corporation, which set up its Hong Kong treasury unit in 2017, managed 50.88 billion yuan in assets by late last year. China Mobile is among others that have established similar centres.

Xia Le, chief economist for Asia at BBVA Research, said the growing concentration should generate “a plethora of new business scenarios” for international yuan use outside the mainland. Is infrastructure enough?

Setting up the financial infrastructure is only the first step. The harder question is whether demand will grow strong enough to sustain the system over the long term.

Overseas appetite for holding yuan assets looks uneven. In a Bank of China survey conducted in January and February, more than half of the 108 overseas commercial banks polled said yuan financial assets made up less than 1 per cent of their investible assets. The share of those planning to increase their holdings fell to 38.6 per cent from 52.4 per cent a year earlier.

The yuan’s share of global foreign exchange reserves also remains modest. It was 2.11 per cent in the second quarter, up from 1.98 per cent in the first, against 56.7 per cent for the US dollar, International Monetary Fund data showed.

For long-term holding, Sergi said, the question was no longer “whether international investors can buy renminbi assets, but whether they can exit, hedge and refinance as easily as with dollar assets”.

Without an open capital account and reliable hedging and repo markets, he added, the yuan remained more useful for transactions than as a reserve currency that investors can freely buy, hold and sell.

Regulators are working to narrow some of those gaps. In his policy address, Lee said the HKMA planned to introduce a seven-day offshore yuan liquidity tender to help banks meet short-term funding needs, and was exploring short-term yuan debt instruments to help build an offshore yield curve.

From November, two HKEX derivatives clearing houses, HKFE Clearing Corporation and SEHK Options Clearing House, are due to accept mainland government and policy bank bonds, held by overseas investors through Northbound Bond Connect as margin collateral, subject to regulatory approval.

Payment links are being extended as well. Lee said the HKMA would encourage more foreign banks in Hong Kong to become direct participants in the Cross-border Interbank Payment System, which clears yuan payments between banks.

The system had 1,853 participants at the end of August, 211 of them direct, state news agency Xinhua reported.

For overseas investors to hold long-term renminbi assets, the product and financial structure have to be supported by proven returns and stabilityTommy Ong, T.O. and Associates Industry experts argued that Hong Kong would need to look beyond traditional equity and bond offerings and broaden its financial product landscape to anchor long-term capital.

The yuan counters remain a small part of trading. From June 2023 to mid-February 2025, they traded 42 billion yuan, about 0.3 per cent of the HK$16.5 trillion traded in the Hong Kong dollar counters, official data showed.

Lee said regulators were preparing to include yuan counters in Stock Connect, which would let mainland investors trade them in yuan.

He described weaknesses in stocks and bonds as “cyclical in nature” and said Hong Kong was probably missing more yuan-priced products beyond them, including oil and gold.

The city is building a commodity trading ecosystem with gold as its entry point. In his policy address, Lee said the HKMA was exploring the possibility of increasing the Exchange Fund’s gold holdings, while a central gold clearing system began trial operation in July, with a full launch planned for the first quarter of 2027.

HKEX planned to launch redesigned yuan-denominated gold futures contracts and more yuan-denominated precious metals products, CEO Bonnie Chan Yiting said in a blog post on Monday.

Wilson Chan Fung-cheung said gold could be a pivotal tool “connecting the renminbi with capital markets”. If Hong Kong gained real influence in the gold market, he said, it could complement the Shanghai Gold Exchange.

The effort would have a better chance of success with stronger government support, he added, since private players have driven it so far.

A global hub for offshore yuan National five-year plans, including the latest approved in March, position Hong Kong as a global hub for offshore yuan business. Economists and industry players call the role “the centre of the centre”.

Singapore and London also handle yuan, adjunct professor Wilson Chan Fung-cheung said, “but they have not been positioned as hubs”. Swift data for June puts Britain, the second-largest centre handling yuan, at less than 7 per cent of offshore yuan payments by value and Singapore at less than 4 per cent.

The city’s first five-year plan, which officials described as a directional guide to 2030, committed to a liquidity mechanism for the offshore market and more risk-management products. It also promised regular dim sum bond issuance by high-grade sovereign, institutional and corporate issuers and wider use of yuan bonds as collateral.

Together, the measures pointed towards “a financial ecosystem in which the yuan can fund, price, hedge and serve as collateral for assets”, analysts noted.

The government would also explore settling more of its own spending in yuan where suitable. The HKMA has signed a memorandum of understanding with Bank Indonesia and the PBOC on a framework to promote rupiah-yuan transactions.

Ong said Hong Kong would play an important part in the digitisation of the yuan and in developing fintech applications for yuan-denominated financial products.

He added that the city would be “a hub for yuan-denominated private equity and private credit” focused on hi-tech industries such as artificial intelligence and biotech.

The renminbi has already become an international currency … The unresolved question is whether China is prepared to make the reforms needed for it to become a truly global oneBruno S. Sergi, Harvard University Wilson Chan Fung-cheung said the next phase of yuan expansion should reach everyday life. The published plans include some official use of the yuan, he said, but little detail on day-to-day adoption by residents and visitors.

“Hong Kong’s offshore renminbi centre needs a development blueprint for everyday use,” Chan said. Results would take more than five years to show, he added, so planning should look 10 years ahead.

But academics based overseas said the market could not rely on policy support and state-backed trade flows alone.

Christopher Marquis, a professor of Chinese management at Cambridge Judge Business School, said that the ultimate test for the city was whether the currency could “be traded in an open market setting”.

Without broader currency reforms, Marquis said, growth risks remained confined to Chinese banks, mainland enterprises and their immediate trade partners, creating a “closed loop” rather than an open ecosystem where global investors freely choose to hold and trade yuan assets.

The next phase of yuan internationalisation was no longer about creating access points but about “creating reasons for global investors to choose renminbi assets voluntarily”, Sergi said.