China expands repo market access for foreign investors

China continues to open its onshore bond market, with the latest reforms significantly expanding foreign investors’ access to the China interbank bond market (CIBM) repo market. Together with the launch of the offshore Bond Connect repo arrangement using Northbound Bond Connect bonds and the recognition of the Global Master Repurchase Agreement (GMRA), these developments offer international investors greater flexibility in liquidity management, financing and collateral optimisation.

However, China’s repo market remains structurally distinct from major international markets. Foreign investors should be aware of the market access routes, transaction structures, leverage restrictions and hedging tools available before entering the market.

1. Key Developments

Recent reforms have broadened repo market participation from a limited group of sovereign and banking institutions to virtually all foreign investors already eligible to access China’s onshore bond market.

Most notably:

• The 2025 Cross-Border Repo Circular permits eligible foreign investors to engage in bond repo transactions in the CIBM.
• The offshore repo arrangement allows Northbound Bond Connect bonds to be used as repo collateral under repo transactions between foreign investors.
• The PBOC has formally recognised the use of the GMRA for repo transactions on the CIBM, bringing documentation closer to international market standards.

These measures are another step in China's broader agenda to internationalise its fixed income markets and improve liquidity management tools for offshore investors.

2. Access Routes Matter

Foreign investors can access the CIBM through:

• CIBM Direct
• Qualified Foreign Investor (QFI)
• Northbound Bond Connect

While all three channels provide access to onshore bonds, they differ in custody, ownership structure and trading arrangements.

The most significant distinction remains Bond Connect’s nominee holding structure through Central Moneymarkets Unit (CMU) under the Hong Kong Monetary Authority (HKMA), whereas CIBM Direct and QFI provide a more direct relationship with onshore custodians and counterparties. These differences can affect eligibility for certain financing and hedging activities, which are summarised as follows:

Custody & Settlement

• CIBM Direct/QFI: Settlement agent model or custodian bank model (direct relationship with onshore financial institutions).
• Bond Connect (Northbound): Multi-tiered custody through HKMA's CMU (nominal holder structure); CMU holds bonds on behalf of ultimate foreign investors.

Legal / Beneficial Ownership

• CIBM Direct/QFI:
  Settlement Agent Model: Assets are held in a designated custody account opened in the name of the offshore investor or the relevant fund/client.
  Custodian Bank Model: Bonds purchased through the custodian bank shall be registered in the name of the onshore custodian bank, while the offshore investor shall enjoy the relevant securities rights and interests in accordance with applicable laws.
• Bond Connect (Northbound):
  Multi-tier Custody Structure: Nominee holder arrangements between the legal holder and beneficial owner are recognised, and the legal relationship between CMU participants and the CMU shall be governed by Hong Kong law.

Counterparties

• CIBM Direct/QFI: Foreign investors transact directly with onshore counterparties approved by the PBOC (banks, securities firms, and other financial institutions in the interbank market) and supervised by the National Association of Financial Market Institutional Investors (“NAFMII”).
• Bond Connect (Northbound): Foreign investors transact through designated onshore dealers and market makers recognized by the PBOC via Hong Kong infrastructure.

Trading Protocol

• CIBM Direct/QFI: Direct negotiation with settlement agent or via the China Foreign Exchange Trade System (“CFETS”) trading system; can act as a CFETS member.
• Bond Connect (Northbound):Request-for-Quote (RFQ) to onshore market makers via overseas electronic trading platforms.

3. Repo Structures: International Investors Should Focus on Title Transfer Repo

China recognises two repo structures:

• (i) Pledged Repo: Bonds remain owned by the repo seller and are pledged as collateral. The repo buyer generally has limited rights to reuse the collateral.
• (ii) Title Transfer Repo: Ownership of the bonds transfers to the repo buyer during the repo term, with equivalent securities returned at maturity.

Historically, China's repo market has been dominated by pledged repos, whereas international repo markets largely operate on a title-transfer basis with extensive collateral reuse and rehypothecation rights.

Although the 2025 Cross-Border Repo Circular contemplates both:

• pledged repo with transfer of title and collateral reuse; and
• title transfer repo, which is currently the only structure available to foreign investors to trade on the CIBM, with the enhanced pledged repo model expected to be introduced at a later stage.

4. Prudential Limits Remain a Core Feature

Unlike many international repo markets, China applies strict leverage and concentration controls.

Key limits include:

• Repo financing limits for foreign investors: Repo financing balances may not exceed 100% of bond holdings for sovereign investors and RMB clearing/participating banks, and 80% of bond holdings for all other foreign investors.
• Reverse repo leverage limit: Investors acting as the reverse repo counterparty (i.e., lending cash and acquiring bonds under a title-transfer repo) are subject to a 200% leverage ratio cap, as for the balance of bonds acquired and pending return to the repo party vs. its total bond holdings. This requirement applies to all market participants, including both domestic and foreign investors.

These requirements reflect China's continued focus on market stability and leverage control and should be factored into any liquidity or financing strategy.

5. A Bank-Dominated Liquidity Market

China's repo market remains heavily dominated by commercial banks, which continue to provide the majority of market liquidity.

However, the recent reforms have opened participation to a broader range of overseas institutions, including:

• commercial banks;
• securities firms;
• insurers;
• fund managers;
• futures companies;
• trust companies; and
• pension, endowment and charitable funds.

Over time, increased foreign participation is expected to support deeper liquidity and a more diversified investor base.

6. Documentation: GMRA Now Available

Foreign investors may now document repo transactions under either:

• the NAFMII Master Repo Agreement; or
• GMRA.

The formal recognition of the GMRA is a significant development for international market participants, many of whom already use the GMRA as their standard global repo framework.

7. Key Hedging Tools for Foreign Investors

Repo financing is only one aspect of balance sheet and portfolio management. Investors holding Chinese bonds should also consider available hedging tools to manage interest-rate, duration and price risks.

• Bond Lending
  Available through CIBM Direct and QFI (but not Bond Connect), bond lending may be conducted on a bilateral or centralised basis.
  A filing requirement applies where borrowed bonds exceed 20% of an investor's bond holdings. While not an absolute prohibition, regulators generally expect market participants not to exceed this threshold on a regular basis.
• Bond Forwards
  Also available through CIBM Direct and QFI (but not Bond Connect), bond forwards offer a useful means of managing duration and interest-rate exposure. Bond forward position limits: foreign investors are subject to concentration, aggregate position and net exposure limits based on the size of their bond holdings and capital base.
• China Government Bond (CGB) Futures
  A major development is the opening of CGB futures to QFIs from 24 April 2026, providing foreign investors with a widely used and liquid interest-rate hedging instrument for the first time.
  QFIs must obtain a dedicated hedging quota from the China Financial Futures Exchange (CFFEX). Hedging quotas are typically granted on two grounds: (i) hedging risks associated with spot bond holdings, and (ii) investment substitution, where futures are used in place of spot assets. The former is straightforward — investors holding or expecting to hold cash positions in the spot market may hedge related risks. The latter allows investors to use financial futures as a substitute for direct spot holdings where investment needs exist. In practice, access is expected to be most relevant for investors holding cash CGB positions or CGB-focused ETF exposures.
  Importantly, based on current market understanding:
  • CGBs held through CIBM Direct and QFI can support quota applications; but
  • CGBs held through Bond Connect may not, given the nominee holding structure and resulting beneficial ownership verification issues.

Looking Ahead

China's latest cross-border repo reforms represent a meaningful expansion of liquidity and financing options for foreign investors. Combined with the introduction of offshore Bond Connect repo arrangements, GMRA recognition and access to CGB futures, the framework is becoming increasingly aligned with international market practice.

Nonetheless, China’s repo market remains subject to unique features—including custody arrangements, collateral treatment and leverage restrictions—that differ materially from many developed markets.

For foreign investors seeking to optimise liquidity, funding and hedging strategies in China's bond market, a careful understanding of these structural differences will remain critical. The reforms create new opportunities, but success will depend on navigating the regulatory and operational nuances of the evolving onshore market.

Should you have any questions or require further assistance regarding any of the above, please do not hesitate to Melody Yang and Sherry Si at YaoWang Law Offices (our strategic alliance firm in China Mainland).