Shanghai Finance


Free trade zone pilots nation to great prosperity

November 21,2018


Innovation in the financial sector has been at the forefront of China (Shanghai) Pilot Free Trade Zone reforms over the past five years, and measures such as free trade accounts have been great facilitators for real economic development.

Launched by China’s central bank in 2014, the free trade account for Shanghai’s free trade zone functions as an instrument to test the country’s capital account conversion in a risk-controlled environment.

Thanks to this innovation among China’s broader financial reforms, companies registered in the area will be able to use the account for financing, investment and carry out other cross-border transactions.

Under this scheme, domestic enterprises in the zone, especially those engaged in foreign trade, will secure cheaper yuan-denomianated funding from offshore.

They can also use the account to deploy capital between subsidiaries both in and out of China and enjoy greater flexibility in foreign exchange management.

In the Shanghai FTZ, financial institutions have been actively making innovative cross-border solutions and have introduced a slew of services that enjoy great popularity among their enterprise clients, according to the Shanghai head office of the People’s Bank of China.

For example, to better meet companies’ needs for efficient remittance, banks have launched comprehensive settlement services which will help reduce the costs of account management.

So far, the Shanghai FTZ has seen more than 72,000 FT accounts opened by over 38,000 enterprises both at home and abroad. The outstanding cross-border yuan settlement within the zone has reached 25.9 trillion yuan (US$3.73 trillion), the banking regulator said.

Also, the pilot zone has lent much support to facilitate firms’ offshore funding needs and has dealt with an accumulative financing of 1.36 trillion yuan during the past five years. The average interest rate for yuan-denominated funding stood at 4 percent, officials said.

In November 2016, the central bank’s Shanghai head office issued policies to encourage the establishment of a fully functional onshore cross-border RMB pool, so that multinational corporations could realize centralized management of their global yuan funds.

With this program, multinational treasury centers will be able to concentrate the global funds in their original currency into a free trade account, then they can freely conduct foreign exchange conversions based on their needs.

The new cash-pooling structure is regarded as a useful tool for companies to manage their overseas portfolios. Nearly 800 multinational companies have used this two-way cross-border yuan capital pool service.

The free trade account system has also brought benefits to technological startups and enterprises engaged in the Belt and Road Initiative in their cross-border business.

Authorities added that while great advances have been made in financial reforms, they have managed risks in an innovative way and businesses are sound.

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Hong Kong students visit Shanghai Financial Service Office