Bond Connect Southbound Link Hits Five Years, Direct Custody Nears 800 Billion Yuan

September 24 marks the fifth anniversary of the launch of Bond Connect's Southbound Trading channel. As a vital link between the mainland Chinese and Hong Kong—and by extension, international—financial markets, the channel has seen a steady increase in participant diversity, upward adjustments to investment quotas, a broadening range of eligible instruments, and a stepwise expansion in market size over the past five years.

On July 7 this year, People's Bank of China Governor Pan Gongsheng announced several expansion measures for Southbound Trading at the Hong Kong Fixed Income and Currency Summit and Bond Connect Forum. These include:

• Raising the annual net investment quota from RMB 500 billion to RMB 800 billion, an increase of 60%
• Including Southbound Trading bonds as eligible collateral for repurchase agreements
• Expanding eligible investment products to include Hong Kong dollar bonds and renminbi-denominated bond-related products
• Extending the policy's influence to the Macau bond market

Wang Dahai, President of Bloomberg Greater China, commented that over the past five years, Southbound Trading has continuously improved the convenience for onshore investors to participate in the offshore bond market, promoting steady growth in cross-border bond investment. As the channel continues to be optimized and expanded, investors will gain access to more diversified asset allocation options, which is expected to further enhance the depth and liquidity of Hong Kong's offshore renminbi bond market and drive deeper interconnectivity between onshore and offshore renminbi bond markets.

Continuous Optimization and Expansion

Looking back over the past five years, Southbound Trading has maintained strong momentum, with ongoing reforms and a密集 rollout of expansion measures.

Launched on September 24, 2021, Southbound Trading serves as an official channel for onshore capital to "go global" and allocate to offshore bonds. At its inception, the annual net investment quota was RMB 500 billion, with a daily quota of RMB 20 billion. Participation was limited to 41 banking financial institutions and qualified domestic institutional investors.

In July 2025, the scope of eligible participants was expanded to include four new categories of non-bank institutions: securities firms, fund management companies, insurance companies, and wealth management subsidiaries. Over the past year or more, numerous public funds, securities firms, bank wealth management subsidiaries, and insurance asset management companies have received approval to participate, leading to increasingly diverse participants and growing demand for investment quotas.

Data confirms the stepwise increase in market size. According to data from Shanghai Clearing House, as of the end of November last year, there were 1,053 Southbound Trading bonds with a total outstanding balance of RMB 655.31 billion. Research from Shenwan Hongyuan Securities shows that as of the end of March 2026, the directly connected custody scale of Southbound Trading approached RMB 800 billion, an increase of RMB 262.5 billion from before the expansion, with growth accelerating notably since the end of 2024.

Ming Ming, Chief Economist at CITIC Securities, noted that with the multi-dimensional expansion of Southbound Trading—including a broader investor base, higher investment quotas, and improved trading tools—the directly connected custody scale has expanded in a stepwise manner, with growth accelerating further since the end of 2024. On one hand, amid declining onshore interest rates and shrinking supply of high-yield assets, Southbound Trading provides onshore institutions with a low-cost, compliant channel for offshore bond allocation, optimizing their asset portfolio structure. On the other hand, driven by growing allocation demand and relatively low renminbi financing costs, the offshore renminbi bond (dim sum bond) market has seen increased issuance and rapid expansion in outstanding market size.

Lin Chunhui, Head of Asia Pacific Fixed Income Investment Portfolio at Invesco, stated that continuously expanding the range of market participants to include different categories such as public funds, pension funds, insurance companies, and other long-term institutional investors will help further deepen the achievements of Southbound Trading. At the same time, improving the product ecosystem and supporting more products and tools will help better meet the investment needs and objectives of onshore investors.

Systematic Upgrades to Mechanisms and Systems

Beyond the visible increase in quotas, a more significant development is the systematic upgrade of mechanisms and functions, with the core logic being to further enhance liquidity in Hong Kong's offshore renminbi market and fixed-income market.

In the view of market participants, over the past five years, Southbound Trading has primarily served as an allocation channel, addressing the core question of whether onshore institutions "can buy offshore bonds." Including Southbound Trading bonds in the scope of repurchase agreements addresses a long-standing market concern: after purchasing bonds, how to revitalize assets and manage liquidity.

Lin Chunhui believes that developing the repurchase mechanism helps improve market liquidity, enabling eligible bonds to serve not only as investment assets but also as liquidity financing assets, thereby enhancing the attractiveness of the offshore bond market to onshore investors.

The entry of insurance funds into the market has been a notable highlight in the past two years. In June this year, China Life Asset Management, entrusted with funds from China Life; Ping An Asset Management, entrusted with funds from Ping An Life; and Taikang Asset Management, entrusted with funds from Taikang Life, each completed their first Southbound Trading investment transactions, marking the official entry of insurance capital into this channel. Compared with traditional cross-border investment channels, Southbound Trading does not consume scarce QDII quotas, providing insurance funds with a normalized and more stable offshore bond allocation channel.

On the supply side, the offshore renminbi bond (dim sum bond) market has grown rapidly, providing ample underlying assets for Southbound Trading allocation. According to data from the Hong Kong Monetary Authority, the scale of dim sum bonds issued in Hong Kong in 2025 reached RMB 1.1 trillion, with the year-end outstanding balance exceeding RMB 1.6 trillion, representing a 74% increase over two years.

Supporting Renminbi Internationalization

After policy-level expansion, what institutional and tool gaps need to be addressed to translate quota dividends into real investment growth?

In Ming Ming's view, first, the availability of risk hedging tools needs to be enhanced, including tools for interest rate risk and exchange rate risk. Second, the rating systems, information disclosure rules, and default handling mechanisms in the offshore bond market differ significantly from those onshore, increasing the difficulty of offshore asset allocation and placing higher demands on cross-border investment research. From a regulatory perspective, regular training on relevant markets and policies could be strengthened.

Regarding the potential for Southbound Trading to further consolidate Hong Kong's position as an international bond hub and develop the offshore renminbi bond market, Ming Ming suggested further optimizing various mechanisms of Southbound Trading based on actual user experience to meet investors' different trading and clearing needs. Additionally, he recommended continuing to support various types of institutions in issuing renminbi bonds in offshore markets to enrich the range of investable products and cultivate a larger-scale offshore renminbi market.

Lin Chunhui suggested that the cross-border fixed-income market ecosystem between the mainland and Hong Kong is expected to continue improving, with further development potential to be unlocked on the basis of the series of optimization measures introduced in July this year. As the scale of issuance in the offshore renminbi bond market continues to grow, Southbound Trading is expected to support the renminbi internationalization process by channeling funds into offshore renminbi assets. At the same time, the continued development of the offshore renminbi bond market is also expected to attract more international capital into the offshore renminbi market. As an important infrastructure connecting China's onshore and offshore bond markets, Southbound Trading will continue to play a positive role.