Shanghai's legislature passed a new set of regulations on Dec 30 to promote the sound and orderly development of the free trade offshore bond business in Pudong New Area, as part of efforts to support Shanghai's push to become an international financial center, serve the real economy, and advance high-standard institutional opening-up.

Under the regulations, free trade offshore bonds are defined as transferable debt financing instruments issued by offshore entities, registered and deposited with approved registration and depository institutions and their branches, primarily targeting offshore investors, with principal and interest repaid as scheduled.

The regulations are scheduled to take effect on March 1, 2026.

Key highlights of the regulations

1. Legal requirements for participating entities

Offshore entities participating in the free trade offshore bond business must comply with the laws and regulations of their home jurisdictions or relevant international treaties.

2. Categories of eligible issuers

• Offshore legal entities and unincorporated organizations;
• Foreign government-related institutions and international organizations;
• Offshore subsidiaries of domestic enterprises;
• Offshore branches of domestic financial institutions;
• Other entities approved by China's financial regulatory authorities.

Issuers are required to fulfill regulatory obligations related to anti-money laundering, counter-terrorism financing, and anti-tax-evasion compliance. Offshore subsidiaries of domestic enterprises must also meet national macroeconomic policy requirements.

3. Issuer eligibility requirements

• Sound corporate governance and effective risk management systems;
• Stable financial performance and strong credit standing;
• Adequate debt-servicing capacity;
• Effective supervision by competent authorities in their home jurisdictions, with key risk indicators meeting regulatory standards.

4. Categories of eligible investors

• Offshore legal entities and unincorporated organizations;
• Foreign government-related institutions, international organizations, and sovereign wealth funds;
• Offshore subsidiaries of domestic enterprises;
• Offshore branches of domestic financial institutions;
• Other entities approved by China's financial regulators.

5. Participation through free trade accounts

Relevant market participants are encouraged to conduct free trade offshore bond business through free trade accounts on a voluntary basis and in compliance with laws and regulations.

The regulations also support the participation of domestic and international banks, securities firms, trust companies, credit rating agencies, law firms, accounting firms, and other institutions in offshore bond-related services.

6. Underwriting arrangements

Commercial banks registered in Pudong, or their Pudong-based branches approved by financial regulators, may participate in offshore bond underwriting. Eligible securities firms and their branches registered in Pudong may also engage in underwriting activities.

7. Registration, custody, and settlement framework

Approved registration and depository institutions may provide services for the registration, custody, and settlement of free trade offshore bonds.

As a general rule, a single-tier custody model is adopted, under which offshore bonds are recorded in accounts opened in the name of the relevant investment entities.

Where offshore participants are involved, and subject to regulatory approval, a multi-tier custody model may be adopted based on business needs. Secondary custodians must be duly qualified under the laws and regulations of their respective jurisdictions.

Custodian institutions shall complete settlement in accordance with valid settlement instructions. Once settlement is completed, it is final and irrevocable.

8. Flexible use of funds and ongoing disclosure

Issuers may select the currency of denomination based on operational needs, with the renminbi encouraged as an option.

Funds raised through the issuance are, in principle, to be used outside the Chinese mainland. Any proposed onshore use must comply with applicable national regulations on cross-border capital management.

Issuers are required to disclose relevant information throughout the life of the free trade offshore bonds in a timely, accurate, and complete manner, in accordance with the offering documents.

9. Support for trading and cross-border cooperation

Trading of free trade offshore bonds is supported in both on-exchange and over-the-counter markets, with settlement handled through custodians and commercial banks in accordance with the law.

Investors may complete clearing and settlement in accordance with the law through custodian institutions, commercial banks, and other authorized entities.

The regulations encourage cross-border regulatory and enforcement cooperation, enhanced investor protection, and exchanges with Singapore, London, Hong Kong, and other countries or regions.

10. Dispute resolution

Market participants may agree on dispute resolution mechanisms and applicable law for foreign-related civil disputes. They are encouraged to prioritize the application of Chinese law and to resolve disputes through Shanghai-based courts, arbitration institutions, or mediation bodies.

Where arbitration is chosen, and the seat of arbitration is agreed in writing, Shanghai is encouraged as the preferred arbitral seat.

Participants are also encouraged to apply for financial market pilot case testing programs, where applicable.

11. Policy support and institutional innovation

The Pudong New Area government and Lin-gang Special Area of the China (Shanghai) Pilot Free Trade Zone will formulate supporting policies. The city will also provide dedicated financial support through the Shanghai financial development fund for a defined period.

 

Source: Jiefang Daily

Note: The English text is for reference only. In case of any discrepancies, the Chinese version shall prevail.