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Improve Your Income: Overcome Low RMB Deposit Rates
20 min read
China is navigating a structural decline in interest rates driven by disinflation and aging demographics.
Older individuals tend to save more and spend less, increasing the supply of available funds for lending. Furthermore, the consolidation of China’s property market has reduced household demand for credit, pushing interest rates lower. RMB is a managed currency, hence there are interest rate differentials between onshore and offshore markets (see chart 1).
Chart 1: Low RMB Deposit Rates
Source: Bloomberg and Sohu, as of 22 July 2025.
Opportunities to Improve Your Income
RMB fixed income assets stand to benefit most directly from this trend. Looking more broadly, offshore RMB bonds—commonly known as dim sum bonds—present compelling yield enhancement opportunities. These instruments, issued outside Mainland China, offer a yield pickup of around 1% compared to onshore China government bonds (see chart 2). However, this yield advantage may not last indefinitely, so investors need to act promptly.
Chart 2: Dim Sum Bonds Present Higher Yields Than Onshore China Bonds
Dim sum bonds are represented by Bloomberg Offshore Renminbi Index Total Return Index. Onshore China Govt. Bonds are represented by Bloomberg China Treasury and Policy Bank Total Return Index. An investor cannot invest directly in an index or average and they do not include sales charges or operating expenses associated with an investment in a mutual fund, which would reduce total returns. Source: Bloomberg, as of 22 July 2025.
Why Now?
In early July, Chinese regulators announced plans to expand the range of eligible investors for the Southbound Bond Connect and were considering to double its annual quota to RMB 1 trillion. The expansion will include brokerages, insurers, mutual funds and wealth managers, enabling qualified Mainland investors to directly purchase dim sum bonds. Previously, the scheme was limited to around 40 banks approved by People’s Bank of China (PBoC). We see this policy change an endorsement to the dim sum bond market following years of monitoring. It also equips domestic investors with an additional avenue to navigate a prolonged low-rate environment, as China’s demand for income grows (see chart 3).
Chart 3: Increasing CNH Bond Holdings by Chinese Investors Via Southbound Bond Connect
Source: Shanghai Clearing House and Standard Chartered Research, as of 30 June 2025.
What Opportunities and Risks Can We Expect?
Dim sum bonds have experienced a notable resurgence in recent years (see chart 4). In 2024, gross issuance reached RMB 1.6 trillion, marking the highest level in a decade. This renewed momentum is driven by China’s low and stable interest rate trend compared to the U.S. (see chart 5), making CNH interest rates an attractive borrowing option. The most apparent beneficiaries are issuers with China-related businesses. Additionally, selective issuers are strategically lowering their overcall cost of capital by swapping borrowed RMB into their base currency, which is a benefit of RMB internationalization. Consequently, we expect a broader range of global issuers to turn to dim sum bonds.
In 2025, around 80% of new issuances came from Chinese issuers, with some bonds offering higher yields than comparable onshore bonds creating relative value opportunities. The remaining 20% were from non-China issuers, adding diversification benefits to the asset class. These issuers often require intensive credit analysis, whilst allowing us to unlock unique opportunities through new issue concessions, price discovery or the rarity value of less commonly seen credit issuers. It is equally crucial for investors to pay attention to the risks associated with dim sum bonds. These include credit risk, given the wide spectrum of credit fundamentals, some of which may be high-yield, non-rated or newcomers to the market. Additionally, dim sum bonds tend to exhibit lower liquidity compared to onshore China bonds.
Chart 4: Dim Sum Bond Gross Issuance Reached Highest Level Over Past Decade
Source: Bloomberg, as of 14 July 2025.
Chart 5: China Exhibits Low and Stable Interest Rate Trend
PBoC Policy Rate is represented by China 7-Day Reserve Repo Rate. Source: Bloomberg, as of 14 July 2025.
Who Could We See Issue Next?
The Indonesian government, a rising star in Asian bond markets, is considering issuing dim sum bonds. China, Indonesia’s largest trading partner, is a key destination for its commodity exports, such as nickel, which is crucial for electric vehicle batteries. Similar trends are observed in Latin America, where countries like Brazil and Chile export soybeans and cherries to China. Fun fact: Did you know that 90% of Chile’s cherry production is consumed by China?
The Belt and Road Initiative, involving 150 countries, aims to connect China with Asia, Europe and the Middle East through infrastructure projects like railways, highways and pipelines. These projects are financed in RMB, providing infrastructure contractors with RMB revenue and incentivizing them to finance in RMB. Nearly half of China’s cross-border trade is now settled in RMB, with Belt and Road Initiative countries leading the shift (see chart 6). At the Shanghai Lujiazui Forum 2025, new initiatives were unveiled to accelerate RMB internationalization. One key measure is the development of free trade offshore bonds, which aims to expand access to offshore RMB capital for companies domiciled in China pursuing overseas operations or projects like the Belt and Road Initiative.
Chart 6: Increase Usage of RMB in China’s Cross-Border Trade
Source: JP Morgan, as of 23 June 2025.
By issuing dim sum bonds, issuers can align their revenues with borrowing costs, eliminate multiple currency transaction expenses, strengthen ties with China and diversify funding sources which lower overall borrowing costs.
China Government Bonds Are Essential
Among RMB-denominated assets, onshore China government bonds (CGBs) are the most liquid and actively traded instruments, offering safe-haven properties. CGBs provide a pure source of duration and benefit from monetary easing policies. We strongly recommend that investors adopt a barbell approach by combining CGBs for their safe-haven qualities with dim sum bonds for their yield-seeking properties, resulting in a well-balanced portfolio.
Conclusion
China’s interest rate trend is in a structural decline. However, relatively attractive income in RMB can still be achieved by combining China’s onshore and offshore bond markets through a barbell approach. Currently, we see compelling income opportunities in the dim sum bond market, though these opportunities may not last forever. Investors need to act now to improve their income.