Summary of Key Points
This article discusses the current state, issues, and reform directions of China's offshore finance sector. Offshore finance serves as a crucial pillar for the country's high-level financial openness. China currently has four types of non-resident account systems: OSA (Offshore Securities Account), NRA (Non Resident Account), FTN (Foreign Trade Account), and EFN (Expedited Financial Account). However, these systems face challenges such as fragmented regulations and limited functionality. The approach needs to shift from traditional "physical isolation" to "institutional resilience" (limited integration with the domestic market) while addressing compliance issues related to cross-border data flows in the digital age. The article proposes five major reforms: unifying account rules, deepening the reform of the domestic currency, and more, to promote the scaled development of offshore finance and support the internationalization of the RMB as well as the construction of a financial powerhouse.
I. China's Offshore Account Systems: Four Types with Distinct Characteristics, but Problems with Lack of Coordination
The core of offshore finance is to provide financial services to overseas entities (such as foreign companies and individuals). China uses four types of accounts for this purpose, each with different rules and uses:
- OSA Accounts: The earliest "purely offshore" account type, accessible only by a few banks like the Bank of Communications and China Merchants Bank. Funds are completely separated from domestic funds and can only be held in foreign currencies (not RMB). While secure, they are outdated for modern needs—e-commerce cross-border transactions using the digital RMB are not possible, and exchange costs are 30% higher, restricting the use of the RMB overseas.
- NRA Accounts: Available at almost all banks, offering both foreign and RMB options. Funds are considered offshore, but domestic transactions are treated as cross-border transactions. These accounts have wide coverage but limited functionality; for example, foreign currency NRA accounts generally cannot be converted into RMB (except in free trade zones), and there is little innovation.
- FTN Accounts: Exclusive to free trade zones, allowing for the free conversion of domestic and foreign currencies. Funds are considered offshore, with a policy of "full openness at the first line (with overseas entities) and limited integration at the second line (with domestic entities)." After an upgrade in 2025, companies will no longer need to pre-register for capital transactions (except for securities investments), improving efficiency.
- EFN Accounts: An upgraded version of FT accounts in Hainan and Hengqin, integrating domestic and foreign currencies. There is "full openness at the first line and a negative list plus quota management at the second line" (quotas linked to the company's net assets from the previous year). As of March 2026, there were over 1,000 EFN accounts in Hainan, with business volumes approaching 500 billion yuan.
The lack of unified rules and inadequate regulatory coordination among these four types of accounts results in approximately 40% of cross-border transactions being conducted abroad, becoming a bottleneck for development.
II. From "Physical Barriers" to "Institutional Flexibility": Why Change the Approach to Isolation?
The safety principle of offshore finance is isolation to prevent overseas risks from affecting the domestic market. However, the traditional "physical barriers" (such as complete separation of OSA accounts from the domestic market) are no longer sufficient:
- Limitations of OSA Accounts: Although they were effective during the Asian financial crisis, they now hinder the internationalization of the RMB and do not support digital payments. The international anti-money laundering organization FATF recommends that China shift from relying on document verification to risk assessment, necessitating an upgrade for OSA accounts.
- Innovations with FTN/EFN Accounts: These accounts allow for "limited integration" with overseas entities while controlling domestic transactions. For example, FTN accounts use RMB quotas and authenticity checks to prevent risks, while EFN accounts permit limited integration of accounts with the same name (quotas linked to net assets). After the 2025 upgrade, companies will no longer be subject to quota restrictions for capital transactions, marking a transition to "institutional resilience" in regulation.
III. Managing Cross-Border Data Flows in the Digital Age
In the digital age, capital and data flows are intertwined; therefore, regulation must also address data management:
- Three Requirements for Cross-Border Data Flow: ① Anti-money laundering requires checking information on overseas entities, necessitating cross-border data transmission; ② Payment settlements require real-time data transfer to ensure accuracy; ③ International tax regulations (such as CRS) mandate reporting of account-related tax information for cooperation with other countries.
- China's Response: China has established a framework using laws like the Cybersecurity Law and issued the "Financial Data Cross-Border Guidelines" in 2025, listing 47 scenarios where data export is exempted. In 2026, a joint document from five departments clarified the establishment of a cross-border financial data whitelist to meet international standards (such as DEPA and CPTPP), ensuring both security and data flow.
IV. Balancing Security and Development: How to Prevent Risks While Boosting Business?
The core of offshore finance is to balance security and development. The article proposes two approaches:
- Three-Dimensional Risk Prevention: ① Account isolation: Strictly separate domestic and foreign funds to control the scale of cross-border flows; ② Regulatory isolation: Apply different rules for offshore and domestic transactions to prevent loopholes; ③ Legal isolation: Establish separate regulations for offshore transactions to handle issues in a closed-loop manner.
- Three-Pronged Approach to Boosting Development: ① Quota management: Set limits based on companies' net assets to prevent unauthorized fund flows; ② Purpose guidance: Prioritize support for trade financing, green development, and technological innovation in the real economy; ③ Dynamic adjustment: The central bank adjusts parameters according to circumstances (e.g., increasing the overseas lending coefficient from 0.5 to 0.6 in 2026) to encourage more lending by companies.
V. Future Reform Directions: Five Key Measures to Advance Offshore Finance
The article outlines five reform recommendations addressing current challenges:
1. Unify Account Rules: Establish unified standards set by the central bank and the foreign exchange bureau to clarify the functions and integration of the four account types, eliminating conflicts and reducing costs.
2. Upgrade OSA Accounts: Amend the outdated 1997 regulations to allow the use of RMB and digital RMB in OSA accounts and expand the number of banks that can offer them, supporting the internationalization of the RMB.
3. Promote Mature Models: Apply the experiences of FT and EFN accounts to more free trade zones, using a unified approach of "macro-prudential management + negative list + quota management" to promote the scaled development of offshore finance.
4. Data Governance Innovation: Pilot convenient data export in free trade zones, establish a whitelist, and align with international standards to facilitate smoother data flows.
5. Legislative Protection: Improve existing regulations in the short term and enact an "Offshore Finance Law" in the long term to clarify account, data, and regulatory rules, stabilizing market expectations.
The main message of this article is that for offshore finance to serve high-level openness, it is necessary to break free from old rules, adopt more flexible systems and data governance practices, and balance security with efficiency. The goal is to build a globally influential offshore finance hub.