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From trade Settlement to Global Financial use

The internationalisation of the Renminbi has evolved from a cross-border trade settlement initiative in 2009 into a pillar of Beijing’s long-term financial strategy. The 15th Five-Year Plan marks a further shift in ambition, upgrading RMB internationalisation from “prudent advancement” to active “promotion”. The objective is to move the RMB beyond trade settlement toward a broader role in global financing and reserves.

China’s position as the world’s largest trading nation, alongside gradual capital-account liberalisation, provides a strong foundation for this expansion. The RMB overtook the US dollar as the dominant currency for China’s cross-border settlements in 2023, reaching a record 56.4% in March 2026, and has become the world’s second-largest trade-finance currency. By mid-2026, cumulative cross-border RMB current-account settlements had exceeded RMB127.9tn, while around one-third of China’s merchandise trade was settled in RMB, up from 18% in 2022.

This shift is evident in Chinese banks’ external balance sheets, with RMB-denominated fixed-income assets quadrupling over five years to US$653bn in 1Q26. Of this, RMB loans and deposits have tripled to US$467bn. We expect this trend to continue as the RMB assumes a greater role in international financial intermediation.

infrastructure for wider RMB use

A deeper financial infrastructure should support wider RMB adoption. The PBoC’s bilateral currency-swap arrangements cover more than 40 counterparties and RMB4.52tn. Drawdowns by global central banks reached a record RMB132.8bn by end-2Q26, reflecting stronger demand for RMB liquidity amid geopolitical uncertainty.

Payment infrastructure is expanding alongside liquidity provision. The Cross-Border Interbank Payment System (CIPS) now has more than 1,820 participants across over 130 countries and regions, with quarterly transaction values exceeding RMB40tn since early 2025. Its growing reach among indirect participants in emerging markets, particularly in South America, Southeast Asia and parts of the Middle East, should facilitate RMB settlement as demand for alternatives to Western-dominated payment networks rises.

China has also broadened the RMB clearing network, with the PBoC authorising around 34 clearing banks across 32 countries and regions. While Hong Kong, Singapore and London remain the main offshore hubs, newer appointments increasingly cover emerging markets and Belt and Road economies such as Brazil, Pakistan, Kazakhstan and Laos, broadening the RMB’s international clearing footprint.

Together, these channels are reducing the cost and friction of RMB transactions. Local clearing can shorten settlement and working-capital cycles, while RMB settlement reduces foreign-exchange exposure and improves pricing certainty. For importers facing constrained US-dollar liquidity, CIPS and bilateral swap arrangements also offer an alternative channel for trade financing.

RMB adoption is consequently moving into larger and more complex transactions. Chinese shipyards, for instance, are using cross-border RMB settlement for multi-billion-dollar vessel contracts, reducing foreign-exchange friction across milestone payments. The integration of RMB into the International Air Transport Association Clearing House is similarly expanding its use in global aviation-related payments.

Capital-account opening is broadening the base

The next leg of RMB internationalisation will increasingly be driven by financial rather than trade flows. Capital and financial-account transactions accounted for 76% of China’s cross-border payments and receipts in 2Q26, versus 24% for the current account, a marked change from the 57%–43% split in 2015.

Securities investment is becoming an important transmission channel. Cross-border RMB settlement for securities investment reached RMB20.8tn in January–June 2025, up 19.5% yoy, as foreign demand for Chinese bonds and investment flows into Hong Kong equities increasingly support RMB usage beyond trade.

RMB debt markets should benefit directly from these capital flows. Panda bond issuance reached RMB225bn by 9 September 2026, up 73% yoy and already above previous annual highs. The investor and issuer base is also broadening, spanning sovereigns such as Kazakhstan, Brazil and Pakistan as well as major international corporates such as Fortescue, Atlas Copco, Bayer and Volkswagen.

The offshore RMB market is following a similar trajectory. Kazakhstan’s state energy company KMG recently completed a record RMB3.5bn Dim Sum bond across five- and 10-year tranches, attracting more than RMB25bn in orders. Growing participation by foreign sovereigns and corporates beyond the traditional Chinese financial and quasi-sovereign base suggests that Dim Sum bonds are becoming a more established international funding channel.

RMB funding is becoming more competitive

Panda bonds have traditionally offered foreign issuers with onshore access a modest structural advantage, as the onshore CNY curve is anchored by PBoC policy and has generally been flatter than the offshore CNH curve. However, the pricing gap between Panda and Dim Sum bonds has narrowed materially in 2026. Coupons are now broadly comparable at three- and five-year tenors: Panda bonds average around 1.86% for three years and 1.98% for five years, versus 1.7–2.0% for comparable Dim Sum deals, leaving a differential of only 10–20bps.

Both markets remain well below comparable US dollar funding costs. A five-year investment-grade USD bond issued by a Western financial institution would typically price around 150–200bps higher. Rising Japanese bond yields are also diminishing the yen’s traditional funding-cost advantage, creating greater scope for the RMB to play a larger role in international funding, particularly at longer maturities.

With China maintaining relatively accommodative liquidity conditions while global borrowing costs remain elevated, we expect both Panda and Dim Sum markets to expand. Their relative appeal should increasingly be determined by pricing, investor depth and access to onshore liquidity.

Strengthening CONNECTIVITY

Deeper onshore-offshore connectivity will become increasingly important as RMB internationalisation moves into its next phase. Beijing is gradually opening the onshore capital market, while Hong Kong and Singapore are deepening offshore RMB liquidity. Together, these developments should make RMB assets easier to access, hedge and finance.

Northbound Bond Connect remains the key channel for offshore access to China’s bond market. Launched in 2017 with fewer restrictions than the QFII and RQFII schemes, it has continued to gain traction, with trading volume reaching a record high in March.

Swap Connect, launched in 2023, complements this by allowing investors to hedge interest-rate risk. The addition of FDR007 to the eligible floating-rate benchmarks in July should further improve hedging efficiency by providing a reference rate more closely linked to banking-system liquidity and monetary policy.

The next stage is likely to involve greater two-way capital flows. The Southbound Bond Connect quota has recently risen from RMB500bn to RMB800bn, while eligibility has expanded beyond banks to securities firms and insurers. Potential participation by China’s RMB3.8tn social security fund could provide another significant source of offshore demand. If 5% of its assets were allocated to dim sum bonds, inflows could reach RMB190bn, equivalent to about 6.7% of the current outstanding stock.

Market infrastructure is evolving alongside these flows. Access to the onshore repo market through Bond Connect has helped narrow onshore-offshore funding spreads, while allowing Bond Connect securities to be used as margin collateral should further improve liquidity. HKEX’s expansion of RMB-related products, including five-year offshore China Government Bond futures, should deepen the range of instruments available to international investors.

Hong Kong’s RMB-HKD Dual Counter Model, introduced in 2023, provides another link between offshore RMB liquidity and Hong Kong equities. By allowing selected shares to trade in both RMB and HKD, it reduces conversion costs for RMB investors and could eventually support greater RMB fundraising, including RMB-denominated IPOs.

These developments reinforce Hong Kong’s role as the main conduit between China’s capital markets and the global financial system. The city accounted for around two-thirds of mainland China’s overseas equity portfolio investment and 17% of debt investment as of December 2025. Hong Kong is also building a commodity-trading ecosystem under its first Five-Year Plan, with gold as the entry point and RMB-denominated commodity products set to expand, further connecting the RMB with global commodity markets.

Deepening offshore liquidity

Offshore liquidity will be key as RMB financial activity expands. Hong Kong’s offshore RMB deposits reached RMB1.09tn in 2Q26. At a five-year CAGR of 5.9%, the deposit pool could reach around RMB1.5tn by 2030, providing greater capacity to support cross-border RMB activity. The HKMA has also raised its RMB Business Facility quota from RMB200bn to RMB500bn in July, strengthening the liquidity backstop as offshore RMB funding needs grow.

Singapore is expanding the regional RMB liquidity pool, particularly for ASEAN. The bloc is now the second-largest recipient of China’s ODI after Hong Kong, accounting for 18% of total China ODI in 2024 (the latest available data). Investment reached US$34.4bn, with a five-year CAGR of 21.4%. China’s share of Singapore’s total FDI inflows rose from 2% in 2020 to 7% in 2025, equivalent to S$14bn.

Singapore’s RMB deposits reached RMB337bn in 2Q26 and, at a five-year CAGR of 15.9%, could approach RMB608bn by mid-2030. A broader range of China-related derivatives at SGX should deepen CNH market liquidity and strengthen Singapore’s role in regional RMB intermediation.

Liquidity provision is extending beyond the major offshore hubs. The PBoC’s latest repo facility allows foreign central banks and international monetary authorities to pledge Chinese government bonds for RMB liquidity, providing an additional source of funding and strengthening the RMB’s role as a reserve asset.

Greater outward investment by mainland investors could become an important source of offshore RMB liquidity. Mainland China’s foreign portfolio investment assets stood at just US$1.4tn, or 9% of GDP, in 1H25, versus more than 100% in the UK and Japan and 57% in the US. The relatively low overseas allocation leaves substantial room for further diversification as cross-border investment channels deepen and restrictions ease.

The next phase

The direction of travel is clear. RMB internationalisation is moving beyond trade settlement towards a broader role in payments, investment, funding and reserves, supported by deeper capital-market connectivity and expanding offshore liquidity.

We expect this process to remain gradual. Beijing is likely to favour targeted opening and stronger onshore-offshore connectivity while retaining controls over cross-border capital flows. Lower RMB funding costs and a widening international issuer base should provide additional support.

Greater access to onshore assets and deeper offshore markets should reinforce two-way RMB flows, helping the currency evolve from predominantly trade-settlement orientation to one for global funding, investment, and reserves. 

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