China Issues Financial Reform Guidelines to Boost Shanghai Free Trade Zone

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Dec. 5 – The People’s Bank of China (PBOC) released the “Opinions on Leveraging the Role of Finance in Supporting the Construction of China (Shanghai) Free Trade Zone (hereinafter referred to as ‘Opinions’)” on December 2, which puts forward the detailed financial reform guidelines to support the Shanghai Free Trade Zone (Shanghai FTZ).

The Opinions mainly cover the following four aspects:

  • Exploring ways to facilitate investment and financing remittance, and promoting the convertibility of capital account;
  • Promoting the cross-border use of RMB to allow enterprises and individuals in the Shanghai FTZ to use RMB to carry out cross-border trade in a more flexible way;
  • Pushing forward the market-oriented reform of interest rate; and
  • Deepening foreign exchange reform and further streamlining administrative examination and approval, so as to gradually establish a suitable foreign exchange control system.

Detailed information can be found below.

Financial Reform Guidelines

Highlights of the Opinions are hereby summarized as below:

  • Allowing residents of the Shanghai FTZ to set up “resident free trade accounts” in both domestic and foreign currencies, and allowing RMB to be fully convertible under those accounts “when conditions are ripe”;
  • Allowing non-residents of the Shanghai FTZ to open the “free-trade accounts for non-residents” and to enjoy financial services according to the pre-establishment national treatment principles;
  • Allowing foreign banks and other enterprises registered in the Shanghai FTZ to invest in Shanghai’s securities market;
  • Allowing foreign companies with subsidiaries in the Shanghai FTZ to issue RMB-denominated bonds;
  • Allowing qualified individual investors to conduct various foreign investment, including trading overseas securities;
  • Allowing enterprises in the Shanghai FTZ to borrow RMB funds from overseas lenders;
  • Allowing enterprises in the Shanghai FTZ to directly invest overseas without going through pre-approval procedures;
  • Allowing financial institutions in Shanghai to provide RMB clearing services to cross-border e-commerce business;
  • Allowing financial institutions in Shanghai to handle the cross-border RMB transactions related to current account and FDI transactions;
  • Allowing certain qualified institutions to issue negotiable certificates of deposit; and
  • Removing the interest rate ceiling on small amount of foreign currency deposits at an appropriate time.

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One Response

  • The Shanghai FTZ is going to be a tremendous opportunity for foreign investors in China. Although there has been much media attention and commentary concerning the lack of detail over the implementing rules, long term China hands will be familiar with the situation. China often releases statements concerning new regulations but doesn’t immediately follow through with the regulatory and guidelines. This has happened many times in the past – for example over a decade ago when the Government introduced regulations for FICE and the ability for foreigners to set up trading companies. The law was changed to permit this but the regulatory guidelines were not issued until 18 months afterwards. The Shanghai FTZ then can be seen as a statement of intent – the Government will liberalize the financial and other markets as they have stated, it’s just that the roll out of this will take a while longer.
    Nonetheless we view the Shanghai FTZ as potentially a game changer in China and how foreign businesses can operate in the country. It represents a significant watershed in opening up and reform. We will of course be releasing additional information concerning implementing rules as and when they become available. Companies interested in the opportunities the Shanghai FTZ represents should watch this space or keep in contact directly with our Shanghai office: shanghai@dezshira.com
    Chris

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