The short-term interest rate for US dollar deposits through the Southbound Tradi

"1-month interest rate at 10%," "3-month interest rate at 7%..." Amid the continuous decline in deposit interest rates, this week, several short-term high-interest US dollar deposit products with interest rates as high as 10% have started to "go viral" on social media platforms, becoming the "new favorite" of investors. Many banks require "waiting in line" to reserve an account for this product and to grab a quota.

Li Mi, who works in finance in Shenzhen, has also caught up with this "trend" recently, opening a "Southbound Trading Link" at a major state-owned bank and purchasing a deposit of $100,000. Based on an estimated annualized interest rate of 10%, without considering exchange rate factors, the income from a 1-month deposit would be $833, equivalent to over 6,000 yuan.

However, reporters have verified from multiple sources that these types of deposits are not regular products. They are exclusive US dollar deposit products offered by banks to new Southbound Trading Link customers after the "Cross-Border Wealth Management Connect" 2.0 version relaxed the thresholds. Typically, the high-interest period is short, and there are certain investment threshold requirements.

Moreover, the exchange rate risk for investing in foreign deposits still exists. Some industry insiders believe that with the expectation of the Federal Reserve's interest rate cuts heating up this year, exchange rate fluctuations will affect returns to a certain extent. Investors should also fully consider such exchange rate risks when engaging in Southbound Trading Link business.

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The highest product interest rate reaches 10%.

On February 26th, after the implementation of the "Cross-Border Wealth Management Connect" 2.0 version in the Guangdong-Hong Kong-Macao Greater Bay Area, the threshold was further relaxed. Many banks took the opportunity to launch short-term high-interest deposit products to "attract customers," with many US dollar deposit interest rates reaching as high as 10%, and many qualified customers have joined in to try it out.

Li Mi also shared with the reporter the "homework" he did on the Southbound Trading Link deposit products in the past two days, with the deposit interest rate being the primary factor he considered.

The highest preferential interest rate is offered by ICBC Asia. Information released by Industrial and Commercial Bank of China (Asia) shows that qualified customers who handle 1-month or 3-month fixed deposits through the Southbound Trading Link account from February 26th to March 31st can enjoy special annual interest rates. The interest rate for 1-month fixed deposits of $1,000 or more is 10%, and 7% for 3 months. The 1-month fixed deposit interest rates for RMB and HKD are 6% and 9%, respectively.

According to incomplete statistics by the reporter, in addition to ICBC Asia, many banks such as Overseas Chinese Banking Corporation, Standard Chartered Bank (Hong Kong), Bank of China (Hong Kong), and China Merchants Bank also offer short-term interest subsidies for new Southbound Trading Link account holders, with 1-month US dollar deposit interest rates ranging from 6% to 10%. The short-term deposit interest rates for HKD and RMB are also mostly above 4%. Compared to the ordinary deposit interest rates of the aforementioned banks during the same period, there has been a significant increase.

"These products are basically short-term interest subsidies from banks," said a marketing person from a foreign bank. The high-interest rate period generally only lasts for 1 to 3 months, and you can only take advantage of it once, not multiple times."This type of promotional activity was more common in Hong Kong banks before. It's just that after the threshold for the Southbound Trading Link was lowered, some banks used this method to indirectly 'attract customers' in mainland China," said the person.

Reporters also learned from customer managers at the aforementioned banks that these short-term high-interest products are mostly promotional activities for customer acquisition, with the duration of the promotion generally around one month. After the promotion period ends, the interest rates may be "downgraded" to return to market rates.

It is worth noting that, compared to regular deposits, purchasing these promotional deposits also requires meeting the Southbound Trading Link threshold. "Meeting the social security conditions, having financial assets of 2 million yuan, or providing an income certificate stamped by a company for the past three years exceeding 400,000 yuan," a customer manager at China Merchants Bank in Dongguan told the First Financial Daily reporter. The conditions have been relaxed compared to before, but the customer base that meets the criteria is not very large, and not everyone can purchase.

A new wave of rush purchases

"Recently, there have been many people coming to handle it one after another," a customer supervisor at a joint-stock bank told the reporter. The last peak period for handling was still at the end of 2021, and after the increase in personal investment quotas this year, the number of people handling it has started to increase again.

In fact, recently, the Southbound business of the Cross-Border Wealth Management Pass has once again ushered in a "small peak," and some banks in popular areas even need to make an appointment to queue up for account opening.

A wealth manager at a state-owned bank in Shenzhen also said that in the past few days, customers have been coming in dense numbers to inquire about account opening, and the procedure takes about 1-2 weeks. The appointment has already been scheduled until mid-March. And purchasing these preferential deposits requires "waiting for the quota," and the rush to purchase is a "race against time." The wealth manager told the reporter that the mainland outlets mainly handle agency business, and the product end of the Southbound Trading Link is usually managed by Hong Kong banks, and the quota for deposit products is also set by Hong Kong banks. These short-term high-interest deposit products are generally used to attract new customers and are very popular. Sometimes the quota is sold out within a week of release, and you have to wait for the next round of release to purchase the product.

"I have just made an appointment with the bank's customer manager and am preparing the materials," Tian Tian (a pseudonym), who works at an internet company in Shenzhen, told the reporter. One of the reasons for choosing to open an account at this time is that there are more preferences recently, and there are preferential products for purchase upon entry, which can be used to arrange the year-end bonus. On the other hand, it is because she has been accustomed to buying deposits and financial management in Hong Kong before, and the Southbound business better meets her investment preferences.

There are quite a few people who have similar considerations to Tian Tian. According to the central bank's data, in 2023, the amount of cross-border remittances related to the pilot of the Cross-Border Wealth Management Pass business reached 10.59 billion yuan, a year-on-year increase of 3.8 times.

Behind the unprecedented promotion efforts and the resurgence of appointment account opening is the further relaxation of the threshold after the implementation of the Cross-Border Wealth Management Pass 2.0 version. The threshold for mainland investors to participate in the Southbound business has been reduced from "paying social security or personal income tax for 5 consecutive years" to "paying for 2 consecutive years." At the same time, "an average annual income of not less than 400,000 yuan in the past 3 years" is added as one of the alternative conditions for family financial asset access.Additionally, this version has also increased the investment limit for individual investors from 10 million yuan to 30 million yuan. If an individual participates in the pilot through both banks and securities firms, each channel has a separate quota of 1.5 million yuan.

Exchange rate risks still exist

In Tiantian's view, the most attractive aspects of the Southbound Trading business at present are still Hong Kong dollar deposits and US dollar deposits, but she also considers allocating some funds or financial management in the future. "I bought US dollar deposits last year, but if the Federal Reserve cuts interest rates this year, exchange rate fluctuations may increase, and it will be necessary to change investment strategies," Tiantian said.

"When purchasing foreign deposit products, one must consider the exchange rate issue and not just look at the surface interest rate," an industry insider believes that the possibility of the United States adopting a preemptive interest rate cut this year is higher, which will have a certain impact on the exchange rate.

"The US economy will go through a sharp interest rate hike cycle from 2022 to 2023, and from 2024 to 2025, as inflation rates decline and unemployment rates rise, the Federal Reserve will start an interest rate cut cycle," said Ye Bingnan, an economist at China Merchants International Financial Co., Ltd., who expects that under certain circumstances, the Federal Reserve may start cutting interest rates in May of this year, with a total reduction of 150 basis points for the year, and a further reduction of about 50 basis points in 2025.

It is worth noting that the Southbound Trading business is in a window period of transformation and upgrading. In addition to deposit business, more products are about to be launched.

According to a research report by Minsheng Securities, as of January 22, 2024, the net outflow of funds for cross-border financial management in the Southbound Trading has increased from less than 100 million yuan in November 2021 to 4.988 billion yuan. However, the used quota only accounts for 3.33%, which is still at a very low level. At the same time, most of the quota is used by investors to purchase deposits. As of the end of December 2023, the balance of products held by investors was 4.87 billion yuan, of which the deposit balance was 4.828 billion yuan, accounting for as high as 99%.

With the expansion of the business pilot scope in the 2.0 version of the cross-border financial management pass, the above issues are expected to be resolved. Recently, in addition to the hot promotion of deposit activities, many foreign banks are also accelerating the update of their product shelves.

For example, Hang Seng Bank announced that the number of cross-border financial management investment products will increase to more than 320, an increase of nearly 100% from the official launch in 2021, covering investment products of different risks to meet the diverse needs of investors. DBS Bank stated that it will provide Southbound Trading customers with a total of more than 220 types of financial products, including funds, bonds, RMB, Hong Kong dollar, and foreign currency deposits. Standard Chartered Bank stated that the number of financial products for Southbound Trading has increased to nearly 550, covering medium to high-risk products, including funds mainly investing in the stock market, and medium to low-risk bonds.

An industry insider pointed out that the high interest rate of Southbound Trading's foreign deposits is just a short-term phenomenon of the policy window. With the further improvement of the Southbound Trading business, more investors may turn to try new products in the future, further increasing the level of trading activity.