According to CCTV News, Shanghai’s Pilot Free Trade Zone confirmed new international finance regulations on 1st August that are expected to be a significant boost to companies in the zone.
The Shanghai Free Trade Zone encourages cross-boarder cash flows. Because in the FTZ, companies are able to borrow RMB from the international marketplace, and that gives them lower costs and simpler operations.
The new FTZ regulations taking effect on 1st August allow businesses within the zone to finance offshore after simply filing out one document. They may borrow RMB in Hongkong, for example, at the Hong Kong interest rate of around 3%, which is about HALF the rate in the Chinese Mainland. It’s a big step for cross-border finance in China.
“The Regulations allow companies in the zone to borrow RMB overseas and use the money in the Free Trade Zone. Once these companies have registered Free Trade Accounts, the RMB they borrowed from other countries may even be used to supplement other businesses, even if they’re not in the Free Trade Zone.” Said professor He Xiaoyong, associate Director of Institute of China FTZ Law.
The companies in the zone also benefit from the newly announced FTZ foreign exchange policy. The original restrictions on outbound investment foreign exchange have now been lifted. Now, if a company in the zone wants to invest overseas, for example, it only needs to notify the bank, and its RMB savings in the Free Trade account would then be exchanged into USD and be wired directly to the destination, without the company going through any foreign exchange controls at all.
“The Shanghai Free Trade Zone is unique in its financial revolution and innovation. The fundamental idea is to gradually turn this high-saving country, as China is, into an investment country. China’s current foreign-exchange reserves are over 400 million, and we need to convert it from buying American bonds into making foreign investments. To make that happen, we need to first start the cash flowing, and allow it be freely exchanged. So that’s why we need to reform our foreign currency system.” Said professor He Xiaoyong, associate Director of Institute of China FTZ Law.