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China (Shanghai) Pilot Free Trade Zone: PBOC issues Financial Reform Opinion

Business Regulation and Tax Newsflash

Issue 12 - 5 December 2013

The People's Bank of China ("PBOC") publicly released its opinion in support of financial reform in the China (Shanghai) Pilot Free Trade Zone ("Pilot FTZ") on 2 December 2013. This long-awaited opinion outlines the financial reform measures that may be introduced in the Pilot FTZ.

Free Trade Account system

  • A resident in the Pilot Zone may set up a Free Trade Account ("FTA") with financial institutions in Shanghai; a non-resident may set up a Free Trade Account for Nonresident ("FTN") with banks in the Pilot FTZ.
  • A free fund flow is allowed between an FTA and an overseas account, domestic non-Pilot FTZ non-resident account, FTN or another FTA.
  • For a non-financial entity, fund flow between its FTA and the same entity's other bank settlement account is allowed if the fund flow is for current account transactions, loan repayment, industrial investment or other qualified cross-border trading needs.
  • The fund flow between an FTA and a domestic non-Pilot FTZ account will be considered as cross-border fund flow for administration purpose.
  • When conditions permit, fund in FTAs or FTNs may be freely converted between RMB and foreign currencies.

Major reform measures

Consistent with the Framework Plan, the PBOC opinion focuses on the four key areas and items tabled below, which to be promoted or piloted in the future.

Convertibility under capital account
Cross-border use of RMB
  • Facilitation of cross-border direct investments by enterprises
  • Facilitation of cross-border investments by individuals
  • Open-up of domestic capital market (stock/futures exchanges, bond market)
  • Facilitation of financing from overseas
  • Offering diversified risk-hedging tools
  • Facilitation of cross-border RMB settlement (current account, direct investment)
  • RMB settlement service for cross-border e-Business
  • RMB borrowing from overseas
  • RMB cash pooling / centralized receipt and payment under current account

  

Interest rate liberalization
Reform in forex administration
  • Establishment of liberalized interest rate system
  • Monitoring the market pricing of interest rate for FTA/FTN
  • Issuance of large-denomination negotiable certificates of deposit
  • Removal of interest rate ceiling of small-denomination forex deposits
  • Facilitation of forex cash pooling and supporting international trading and settlement centre
  • Simplification of forex registration under direct investment
  • Simplification of forex procedures to support leasing service
  • Removal of approval requirement of guarantee fee payments
  • Supporting OTC transactions of commodity derivative for domestic clients

 

With the risk-control principle being emphasized and a special section included into the opinion addressing risk monitoring issues, it may be inferred that the PBOC will take a prudent approach and further the reform in a phased way. Details concerning implementation are still awaited.  

 

Please follow the link for Deloitte unofficial English translation of the PBOC opinion. You may also access the relevant information and regulations about the Pilot FTZ via Deloitte's dedicated portal page.

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