PBOC Launches Repo Facility to Boost Offshore Yuan Liquidity for Foreign Institutions

The People's Bank of China (PBOC) has established a new repurchase agreement (repo) facility designed to provide yuan liquidity to foreign central banks, international financial organizations, and sovereign wealth funds. PBOC Governor Pan Gongsheng announced the initiative on June 17 at the Lujiazui Forum in Shanghai, positioning it as a key tool to support overseas investors' liquidity management and yuan asset allocation needs in China's bond market.

The facility will support both pledged and outright repo transactions, with eligible collateral comprising high-quality yuan-denominated bonds including Chinese government bonds, central bank bills, and policy bank bonds. Repo tenors will range from seven days to three months, with interest rates set by adding a spread to the PBOC's seven-day reverse repo operations in the open market. This pricing mechanism links the offshore facility directly to domestic monetary policy.

Beyond the repo facility, the PBOC announced a broader set of financial opening measures aimed at strengthening China's international financial competitiveness. These include a pilot program for offshore yuan foreign exchange trading in the China Shanghai Pilot Free Trade Zone, with authorization to be granted to major banks including the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and China Citic Bank. The PBOC will also collaborate with Shanghai's municipal government to develop an action plan for offshore financial development, focusing on offshore bond issuance, offshore trade finance services, and treasury centers for multinational corporations.

Governor Pan emphasized that China's stock and bond markets have achieved a relatively high level of openness, and the next phase will focus on promoting high-quality two-way opening of financial markets, improving cross-border investment and financing convenience, and strengthening connectivity between domestic and international financial market infrastructure. The PBOC also plans to further expand its open-market operations toolkit and improve its short-term interest-rate management framework, including introducing additional varieties of overnight reverse repo operations to better match the banking system's liquidity needs.