China Further Expands Currency Conversion Program for MNCs

Posted by Written by Arendse Huld Reading Time: 5 minutes

Monetary authorities in China have upgraded a cash pooling pilot program, enabling multinational corporations (MNCs) in specific regions to integrate cash pools consisting of both Chinese yuan (RMB) and foreign currency. This upgrade facilitates the cross-border utilization of funds. The most recent revision of the pilot program provides enhanced flexibility to participating MNCs, allowing them to determine the collection ratio for foreign debt and overseas loans. In this article, we examine the expansion of the China cash pooling pilot program since its initial launch and discuss the benefits it offers to MNCs and banks.

According to a joint announcement from the People’s Bank of China (PBOC), China’s central bank, and the State Administration for Foreign Exchange (SAFE) released on May 19, 2023, the upgraded pilot program will now allow MNCs to determine the collection ratio of foreign debts and overseas loans by themselves, among other changes.   

The latest upgrade will initially be implemented as a pilot program in Beijing and Guangdong. However, it is worth noting that the previous version of the pilot program had already been expanded to multiple regions in July 2022.


The China cash pooling pilot program was first launched in March 2021, when the PBOC and SAFE released a joint statement announcing that certain multinationals in Beijing and Shenzhen would be permitted to integrate RMB and foreign currency cash pools to facilitate the use of cross-border funds.

Initially, 10 MNCs were selected for the pilot program, five each in Beijing and Shenzhen, which included Sinochem Group, COFCO Corporation, China General Technology (Group) Holding, China Aviation Industry Corporation, and Shell Group. These companies reportedly engaged in cross-border fund transactions worth a total of US$50 billion during the pilot program’s initial phase.

Within one year of its launch, the pilot program in Shenzhen expanded to include 35 companies, including notable names like Walmart and Flex Ltd.

In July 2022, the pilot program’s reach was extended to additional cities and provinces, including Shanghai, Guangdong, Shaanxi, Zhejiang, and Qingdao. On July 6, the first MNC joined the program in Hainan. Moreover, the scope of the program itself was also expanded.

Who is eligible for the pilot program? 

The participating MNCs are selected by the local branch of the SAFE in each jurisdiction in which the pilot program is running. 

According to the 2021 rules, the pilot program is targeted at large multinationals with high credit ratings. In addition, the domestic and foreign member companies under the MNC must meet the following conditions: 

  1. For domestic member enterprises: Have an operating income in the previous year of at least RMB 10 billion (US$1.4 billion), and a total balance of payments in domestic and foreign currencies in the previous year of at least RMB 7 billion (US$988.9 million).
  2. For foreign member companies: Have a total operating income of at least RMB 2 billion (US$282.5 million) in the previous year.
  3. For both domestic and foreign member companies: Have no record of violations of UN Security Council sanctions resolutions.
  4. For domestic member companies: Have no record of major violations of laws and regulations in the process of carrying out cross-border business in the past two years. Companies included in the list of enterprises with foreign exchange receipts and payments for trade should be classified as Class-A companies and not be included in the key supervision list of companies settling in RMB for export goods trade under key supervision.
  5. For foreign member companies: Must not belong to the companies that are restricted and prohibited from overseas investment under the Guiding Opinions on Further Guiding and Regulating the Direction of Overseas Investment (Guobanfa [2017] No. 74). 

What can the MNCs do under the pilot program? 

With the launch of the program in 2021, the MNCs were permitted to integrate various existing cash pools to enable cross-border funds in RMB and foreign currencies between their domestic and overseas subsidiaries. 

Under the program, the cap on foreign debt for MNCs is set at two times the accrued owner’s equity of the cash pool, which is in line with SAFE’s 2019 Regulations on the Centralized Operation and Management of Cross-border Funds of Multinational Corporations. Meanwhile, the cap on overseas lending is set at 0.8 times the accrued owner’s equity of the fund pool. 

The pilot program also facilitates the transfer and use of funds by allowing the foreign exchange settlement funds in the domestic capital account to be directly transferred to the domestic RMB capital account. 

Participating companies are also permitted to use domestic foreign exchange derivatives to hedge against the risks posed by currency exchange fluctuations.

Finally, participating MNCs can purchase a certain quota of foreign currency as needed, without seeking approval from SAFE every time they want to buy foreign currency under the capital account, and can deposit the funds raised from the purchase of foreign currencies into the domestic account for overseas payments. The quota for foreign currency purchases is determined on a case-by-case basis by SAFE. 

In July 2022, when the pilot program was expanded to more areas and companies, the scope of the program itself was also broadened. The expanded scope included allowing MNCs to handle domestic and foreign currency centralized receipt and payment of their overseas member companies in China. Under this policy, the host company is allowed to centrally collect and pay the funds related to trade transactions between the overseas member companies listed in the cash pool and overseas trading counterparts. These transactions will take up some of the centralized debt limit recorded in the cash pool and require an international balance of payments reporting. 

Finally, in May 2023, the program was further upgraded to allow MNCs to determine the collection ratio of foreign debt and overseas according to the macroprudential principle, thus increasing the freedom of cross-border capital operations. However, this policy is currently only being implemented in Beijing and Guangdong. 

How will the program help MNCs and banks? 

The pilot program brings substantial improvements to the efficiency of cross-border capital coordination and utilization for MNCs. It enables them to effectively manage funds in both local and foreign currencies, resulting in reduced currency exchange risks and financial costs.

According to a statement from Standard Chartered Bank made after the initial launch of the pilot program, it “reduces manual processes and greatly improves the flow of cross-border funds by integrating the process of RMB and foreign currency cash pooling.” Under current rules, the RMB and foreign currency accounts must be managed separately and are subject to different rules, and coordination between the two is therefore difficult.

Meanwhile, enabling MNCs to purchase foreign currencies more easily will significantly help to reduce the risks of exchange rate fluctuations, and provides “convenience for multinational groups in managing the cross-border fund of their member companies, significantly reducing exchange costs and effectively managing exchange risks.” 

Under the current rules, foreign currency purchases must be approved by SAFE, greatly slowing the process. 

The pilot program is also beneficial to banks that are servicing the companies by “enhancing their overall capabilities in cross-border business services and risk management”, according to the Beijing branch of SAFE. Meanwhile, Standard Chartered said that the pilot “optimizes the service delivery through improving work efficiency and reducing operating cost”. 

Finally, the pilot program also helps to advance the internationalization of the RMB, a core goal of the Chinese government. In the announcement of the 2022 expansion of the pilot program, the authorities stated that the program will facilitate MNCs to carry cross-border payments in RMB. 

Beyond the current scope of the pilot program, the monetary authorities have stated that they will continue to optimize the program to facilitate cross-border utilization of mixed currency funds. It is also possible that the authorities will lower the requirements in the future so that more companies can participate, as the current bar means that the majority of companies are ineligible for the program. 

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