Is the Renminbi in Hainan offshore Renminbi after the closure?

Written by: Zhang Feng

After the closure of Hainan, the Renminbi within its territory has not changed its fundamental property as domestic Renminbi. However, within the EF account system, it is endowed with highly similar offshore Renminbi convenience functions. Therefore, it can be summarized as “overall onshore, account-type offshore.”

1. The entire area is still within the domestic Renminbi (CNY)

It is essential to clarify a basic positioning first: Hainan Free Trade Port is a special area under the supervision of Chinese customs, rather than a sovereign external area “outside the borders”. It still falls within the jurisdiction of China's customs and monetary sovereignty.

Therefore, the RMB that circulates and is stored throughout Hainan Island has the same legal nature as the RMB in places like Shanghai and Beijing, all of which belong to the domestic RMB (CNY), uniformly regulated by the People's Bank of China, and subject to the same monetary policies and clearing rules.

For ordinary Hainan residents and enterprises opening regular savings or settlement accounts in banks, the RMB within these accounts is no different from funds in mainland accounts. Daily transactions such as deposits, withdrawals, transfers, and consumption fully comply with mainland rules and are not affected by the closure of borders. The closure changes the rules for cross-border and cross “second-line” fund management, rather than the legal status of the RMB itself.

2. The “quasi-offshore” characteristics of RMB in the EF account

However, the EF account (Multi-functional Free Trade Account) of Hainan Free Trade Port is a core tool for financial openness, providing a banking account system for entities within the region and foreign institutions that integrates local and foreign currencies with free exchange. Through the EF account, enterprises can efficiently manage cross-border receipts and payments, reduce exchange costs, and carry out cross-border financing, cash pooling, and other services, strongly supporting the process of liberalizing and facilitating trade and investment in the free trade port.

The EF account has opened up a cross-border capital flow channel, allowing funds to conveniently enter and exit at the “first line” and penetrate limitedly at the “second line”, significantly enhancing the facilitation of trade and investment. The EF account system of Hainan Free Trade Port has implemented account separation and accounting through “electronic fencing” technology. This means that the RMB stored in the EF account, while legally classified as CNY, functionally enjoys conveniences similar to offshore RMB (CNH).

For EFT accounts (overseas institutions): The RMB within can be freely exchanged with foreign currencies, based on commercial instructions, with no quota limits, fully serving the needs of international trade settlement and investment.

For EFP accounts (eligible individuals): After meeting certain conditions (such as residing, working, or studying in Hainan for over a year and having legal income proof), one can enjoy exchange conveniences for cross-border investments and purchasing financial products within the quota.

For EFE accounts (enterprises in the free trade port): When engaging in trade and direct investment with foreign countries at the “front line”, the exchange of RMB and foreign currencies is equally highly free and convenient.

3. The Essential Differences Between EF Account RMB and Traditional Offshore RMB (CNH)

It is a misunderstanding to equate Hainan EF account RMB with traditional offshore RMB (such as CNH in Hong Kong). There are fundamental differences between the two.

Different Sovereign Regulations: CNH exists in the offshore market outside of China's sovereign jurisdiction and is mainly regulated by financial regulatory bodies in places like Hong Kong; while the Hainan EF account RMB is under the direct supervision of the People's Bank of China within the “electronic fence,” which is “offshore facilitation under domestic regulation.”

Different exchange rate formation mechanisms: The CNH exchange rate is determined by supply and demand in the offshore market, often differing from the onshore CNY exchange rate (exchange rate difference); within the Hainan EF account, RMB can use either the CNY exchange rate or the CNH exchange rate, giving enterprises the option, which effectively smooths out potential arbitrage opportunities.

Unlike the connectivity of the mainland market: CNH funds entering the mainland are subject to strict controls (such as channel quota limits); whereas there exists a compliant, transparent, and controllable quota “second-line” penetration channel between Hainan EF accounts and ordinary accounts in the mainland (such as the 1 times equity quota mentioned earlier), maintaining an organic connection with the mainland economy.

Therefore, the Renminbi model in Hainan is an innovative “onshore-offshore” arrangement that incorporates the convenience of the offshore market while being firmly rooted in the regulatory framework of the onshore market, making it a more controllable risk open exploration.

4. Core Differences Between EF Accounts and Regular Accounts

Comparison Dimension

EF account (Free Trade Account)

Regular Bank Account (Hainan/Mainland)

Account positioning

The main channel for cross-border capital flow in the free trade port, with account splitting, electronic fence management, and the capability of “onshore-offshore” functions.

Regular domestic fund account for daily income and expenditure.

Account Holder

Enterprises registered in the Hainan Free Trade Port (EFE), eligible individuals (EFP), overseas institutions (EFT), and banks within the region (EFB).

Natural persons or enterprises within the territory (without special regional restrictions).

Cross-border settlement rules (First Line)

Free transfer with overseas accounts, no prior approval required, multi-currency settlement.

Must comply with foreign exchange management regulations, submit authentic materials, and approval/filing is required under capital items.

Cross-second-line settlement rules

For domestic ordinary account RMB transfers, set quota management (such as 1 times the owner's equity for enterprises) and negative list restrictions.

Free transfer of RMB with other accounts within the country, no quota limits.

Renminbi against foreign currencies

Enterprise/Overseas Institutions: Free exchange, no quota limit. Individuals (meeting the requirements): Convenient exchange within the quota.

Individual: Annual foreign exchange settlement and sales quota equivalent to 50,000 USD. Enterprise: Actual need for exchange under trade items, approval required under capital items.

Applicable Scenarios

Cross-border trade, investment and financing, offshore finance, bulk commodity trading, cross-border e-commerce, etc.

Daily consumption, domestic trade, domestic investment, ordinary transfer.

regulatory model

Focus on post-event verification, relying on the monitoring platform for full-process tracking, macro-prudential + negative list management.

Pre-approval (cross-border business) + daily supervision, in accordance with regular foreign exchange and RMB management regulations.

Rates and Efficiency

Low fees, fast fund arrival (often real-time), with the option to freely choose between onshore (CNY) or offshore (CNH) exchange rates.

The transaction fees are relatively high, and the arrival time is slow (1-3 working days), only using the onshore (CNY) exchange rate.

For enterprises, opening an EF account requires that the registered location is in the Hainan Free Trade Port and that the actual business activities align with the industrial policies of the Free Trade Port. It is strictly prohibited for shell companies to open accounts for arbitrage. The transfer of second-line funds must strictly comply with the negative list, and EF account funds are not allowed to flow into restricted areas such as real estate and virtual currencies in violation of regulations.

For individuals, opening an EFP account requires providing proof of residence, social security payment records, and other materials. It is strictly prohibited to forge materials for illegal account opening. Personal cross-border currency exchange funds must be used for compliant investments and may not be used for illegal activities such as overseas securities speculation or cross-border gambling.

In summary, the funds in the EF account must genuinely match the business background. It is strictly prohibited to use the EF account for money laundering, tax evasion, currency evasion, and other operations. Banks and regulatory authorities will conduct thorough investigations into abnormal transactions.

V. The Path to Promoting the Free Convertibility of the Renminbi: Phased, Gradual, and Risk-Controlled

Regarding the question of “whether foreign currency can be freely exchanged,” the answer is not simply “yes” or “no,” but should be understood as follows: In Hainan, a layered and progressive facilitation system for the exchange of domestic and foreign currencies centered around EF accounts is being steadily constructed, with the ultimate goal of achieving the convertibility of the RMB under the capital account, while ensuring that the entire process remains controllable in terms of risk.

(1) The differentiated exchange convenience of current accounts

Currently, the RMB exchange policy in Hainan shows a distinct characteristic of “account differentiation,” which is an intuitive reflection of the “phased” approach.

Within the EF account system: a highly convenient free exchange has been achieved. Enterprises and overseas institutions can freely exchange Renminbi and foreign currencies at market exchange rates when handling compliant cross-border trade, direct investment, and other businesses, without additional quota restrictions, and the process is simple. After meeting specific conditions, individuals can also enjoy cross-border investment exchange convenience that is superior to that of ordinary mainland accounts in their EFP accounts.

In regular bank accounts: The policy for exchanging RMB for foreign currency is completely consistent with that of the mainland. Individuals are still subject to the annual limit of 50,000 USD equivalent for foreign exchange transactions; enterprises must follow the “actual need principle,” and capital account exchanges still require approval. This ensures that during the initial stage of border closure, irrational or speculative large-scale foreign exchange demand from individuals will not impact the stability of the national foreign exchange market.

(2) A clear “three-step” strategic plan for the future

According to the “Overall Plan for the Construction of Hainan Free Trade Port”, the promotion of the free convertibility of the renminbi is a systematic long-term plan:

Phase One (Early Operation of Closure): Focus on facilitating trade and investment. Fully achieve the free exchange of settlement under goods and service trade, and significantly simplify the exchange process for cross-border direct investment. Currently, the operation of EF accounts has basically achieved the goals of this phase.

Phase Two (3-5 years after the closure): Gradually expand the opening of capital projects. Under the premise of controllable risks, pilot the facilitation of cross-border securities investment (such as an upgraded version of the “Cross-border Wealth Management Connect”), and more flexible cross-border financing. At the same time, it may cautiously relax the “second-line” infiltration limit between EF accounts and mainland accounts to enhance the linkage between internal and external circulation.

Phase Three (Mature Operation Period of Free Trade Port): The ultimate goal is to basically achieve the convertibility of the RMB for capital accounts. Create a financial ecosystem where the flow of funds between EF accounts and domestic accounts is more flexible, and where domestic and foreign markets are deeply integrated, making Hainan an important window and testing ground for the internationalization of the RMB.

(3) Mechanism for Ensuring Smooth and Orderly Opening Process

Such a significant degree of openness is not without restrictions. In order to ensure the smooth progress of exchange liberalization, a set of strict supporting保障机制 has been established simultaneously:

Macroprudential management: The central bank can guide and control the scale and pace of cross-border capital flows in aggregate by adjusting the parameters of macroprudential regulation for full-scale cross-border financing and other tools.

Negative list management: Clearly list the areas prohibited for exchange, such as money laundering, terrorist financing, purely speculative short-term capital flows, etc., to ensure that financial openness is not used for illegal activities.

Technology monitoring and penetrating regulation: The cross-border capital flow monitoring platform plays the “Eagle Eye” role, providing real-time monitoring and early warning for abnormal transactions and large capital flows, achieving precise prevention and control.