by YANG Zhijin

Shanghai plans to upgrade its international financial center under its next five-year blueprint, with proposals that include developing an offshore financial functions zone to address long-standing constraints.

The proposal was outlined on Jan 19, when Shanghai released recommendations for its 15th five-year plan (2026–2030). Rather than expanding the sector's footprint, the document emphasizes strengthening core financial functions, including building a global allocation and risk-management center for renminbi assets, improving the modern financial system and enhancing support for the real economy.

A central plank is the plan to develop an offshore finance (and economy) functions zone, alongside exploring onshore renminbi foreign-exchange futures trading and promoting the establishment of an international financial asset trading platform.

ZEGN Gang, deputy director of the National Institution for Finance and Development, said the blueprint signals a shift in Shanghai's financial-center strategy, from institutional clustering to reinforcing functions that underpin global competitiveness.

Offshore finance as a controlled workaround

The offshore finance functions zone is a new policy concept in China, reflecting the limits of rapid liberalization in onshore markets. Offshore structures are designed primarily for non-resident participants and typically operate under more flexible rules, but within clearly segregated regulatory frameworks.

For policymakers, such zones offer a way to attract foreign capital into renminbi assets without signaling broad capital-account opening. Shanghai has already tested this approach in its pilot free-trade zone, where free-trade accounts are used to ring-fence offshore and onshore funds.

The idea is now being scaled up. The Lingang area of the free-trade zone has said building an offshore finance functions zone will be among its key institutional-innovation tasks in 2026.

Under the five-year plan proposals, Shanghai would expand cross-border and offshore financial services, improve facilitation for cross-border investment and settlement, enrich foreign-exchange hedging tools, optimize offshore account systems and promote offshore lending and free-trade offshore bond issuance, while strengthening regulatory and legal frameworks.

Offshore bonds gather momentum

Market participants say conditions are becoming more favorable for offshore financing, as renminbi interest rates remain near historical lows while borrowing costs in major developed economies stay elevated.

In the second half of last year, the Hong Kong branches of major Chinese banks issued free-trade offshore bonds in Shanghai, with both issuers and investors based outside the mainland. Trial rules issued in September clarified that such deals must meet "both ends offshore" requirements, covering issuers and investors alike.

Zeng said offshore bonds and offshore lending can broaden financing channels, lower funding costs and expand the international use of the renminbi. Over the next five years, he added, Shanghai will need to refine free-trade account functions, tighten offshore supervision and strengthen coordination with other offshore centers such as Hong Kong.

SHI Xiaoshan, a senior researcher at credit rating firm CSCI Pengyuan, said free-trade offshore bonds are becoming more open and internationalized, with Middle Eastern investors already participating in recent deals. She added that broader foreign-only participation could follow as credit-rating frameworks and currency-hedging tools improve.

FX futures back on the agenda

The plan also revives Shanghai’s ambition to explore renminbi foreign-exchange futures trading, a long-discussed reform aimed at filling gaps in onshore risk-management tools.

China's onshore FX market currently relies mainly on over-the-counter instruments such as forwards, swaps and options, while offshore renminbi futures traded in Hong Kong and Singapore dominate global liquidity. As exchange-rate volatility increases, demand for more diversified onshore hedging tools has grown.

Zeng said an onshore FX futures pilot would be strategically significant, helping retain pricing power within the mainland market and strengthening Shanghai's role in global renminbi pricing. He cautioned, however, that any rollout would need to proceed cautiously, adhering to genuine hedging demand and strict risk controls.

Finance in service of innovation

The blueprint also reinforces Shanghai’s role in channeling finance towards innovation and industrial upgrading. It calls for attracting more foreign financial institutions and international organizations, and for supporting investment banking, asset management and wealth management.

Technology finance features prominently, with support for early-stage and long-term investment in "hard tech", the STAR Market and a dedicated "technology board" in the bond market. By the end of last year, about 600 companies were listed on the STAR Market, raising nearly 1 trillion yuan. Since May, around 2.3 trillion yuan of tech-focused bonds have been issued, mostly through markets based in Shanghai.

Zeng said the plan reflects Shanghai's intention to upgrade its international financial center by strengthening functional capacity, using institutional innovation and financial tools to better support technological innovation and the real economy.