27 December, 2013
Legal News & Analysis – Asia Pacific – China – International Trade
On 2 December 2013, the People’s Bank of China issued a set of detailed guidelines on the financial liberalisation in the China (Shanghai) Pilot Free Trade Zone (“PFTZ”). The document, Opinion on the Provision of Financial Support for the Development of the China (Shanghai) Pilot Free Trade Zone («中国人民银行关于金融支持中国(上海) 自由贸易试验区建设的意见») (“Opinion”), deals with seven key areas of the provision of financial support, ranging from the management of free trade accounts, RMB cross- border transactions, foreign exchange management, and the liberalisation of interest rates. It is reported that steps will be taken to implement these guidelines in three months, and it will take about one year before the financial liberalisation in the PFTZ could be replicated in other regions.
The summary of the key features of the Opinion is set out below.
Management Of Free Trade Accounts
The Opinion states that residents in the PFTZ will be allowed to Non-resident Free open Resident Free Trade Accounts (“RFTA”) in both local and Trade Accounts foreign currencies. Non-residents, meanwhile, will be allowed to open Non-resident Free Trade Accounts (“NFTA”) and enjoy financial services according to pre-establishment national treatment principles. Funds in the RFTA and NFTA can be freely transferred between themselves, as well as to any offshore accounts or onshore non-resident accounts. Full RMB convertibility will be allowed for the RFTA and NFTA at a later stage when appropriate.
Cross-Border Investments And Transactions
The following rules will apply to cross-border investments and transactions:
- Enterprises in the PFTZ will be allowed to directly convert RMB into foreign currencies for any overseas direct investment without prior approvals.
- Qualified domestic individuals employed in the PFTZ will be able to make various offshore investments, including trading overseas securities.
- Qualified foreign individuals employed in the PFTZ will be able to make various onshore investments, including trading domestic securities.
- Enterprises and financial institutions in the PFTZ will be allowed to invest in the stock and futures exchange in Shanghai.
- Foreign companies with affiliates in the PFTZ will be able to issue RMB-denominated bonds on the domestic securities market.
- Enterprises, non-banking financial institutions, and other organisations in the PFTZ will be allowed to borrow offshore funds.
Use Of Cross-Border RMB
Enterprises and financial institutions in the PFTZ will be able to pooling and borrow RMB loans from overseas lenders. However, they may not clearing services use such RMB loans for investing in securities and derivative products, or for making entrusted loans. Enterprises in the PFTZ may carry on intra-group cash pooling businesses, and financial institutions in Shanghai may provide RMB clearing services to cross-border e-commerce business.
Liberalisation Of Interest Rates
Qualified financial institutions in the PFTZ will be given priority when applying to the central bank for approval for the issuance of large negotiable certificates of deposits. At an appropriate time, foreign currency accounts will no longer be subject to the ceiling on deposit rates for deposits of less than USD 3 million or the equivalent.
Reform Of Foreign Exchange Management
The foreign exchange registration procedures for direct investment may be handled by the banks and the foreign invested enterprises in the PFTZ will be able to convert their capital funds into RMB at any time.
Financial leasing Financial leasing companies in the PFTZ will be allowed to collect rent in foreign currency for their domestic financial leasing transactions.
Guarantee fee Under current PRC laws, payment by a domestic enterprise of a guarantee fee to an offshore entity is subject to prior approval by SAFE. Enterprises in the PFTZ will be allowed to purchase foreign exchange and make such payments without SAFE approval.
For further information, please contact:
Joseph He, Partner, WongPartnership
joseph.he @wongpartnership.com
Gerry Gan, Partner, WongPartnership
gerry.gan @wongpartnership.com