Notice of the Shanghai Head Office of the People's Bank of China to Promote Cross-border Use of Renminbi in the China (Shanghai) Pilot FTZ
To the China Development bank, policy banks, state-owned commercial banks, joint-stock commercial banks, China Postal Savings Bank Shanghai branch; Bank of Communications, Shanghai Pudong Development Bank, Shanghai Bank, Shanghai Rural Commercial Bank; the other urban commercial banks Shanghai branches; all the foreign banks in Shanghai; all the non-banking financial institutions:
According to the "Opinions of the People's Bank of China to Support China (Shanghai) Pilot Free Trade Zone in Financial Sector" ("the Opinions") and relevant rules, as approved by the general head office of the People's Bank of China, the notice to promote cross-border use of Renminbi ("RMB") in the China (Shanghai) Pilot Free Trade Zone ("Pilot FTZ") is as follows:
1. The policies introduced by the State which encourage and promote cross-border use of RMB shall all apply to the Pilot FTZ.
2. The cross-border RMB settlement in the Pilot FTZ for items under current accounts and direct investment
Based on the three principles (i.e. "Know your customer", "Know your business" and "Due diligence"), banking institutions in Shanghai may directly process cross-border RMB settlement under current account or direct investment items for entities (except for those entities on a monitoring list for cross-border RMB settlement purpose) or individuals in the Pilot FTZ according to their receipt/payment instructions.
(1) For projects on the negative list, when processing the settlements under direct investment items for the abovementioned entities, the banks shall, according to administrative requirements of market admission in respect of projects on the negative list of the Pilot FTZ, require the approval documents issued by relevant departments to be presented.
(2) The Shanghai head office of the People's Bank of China and the Administration Committee of the Pilot FTZ will establish direct investment information sharing regime through a comprehensive information monitoring platform, providing relevant information service to commercial banks.
3. Bank settlement accounts for individuals in the Pilot FTZ
To facilitate individual conducting cross-border RMB settlements under current accounts, people working or practicing in the Pilot FTZ may open individual or individual industrial and commercial households bank settlement account to make RMB cross-border payments and receipts according to the "Administrative Measures on Renminbi Bank Settlement Accounts" (Order of the People's Bank of China  No. 5) and relevant regulations. In addition, when foreign individual opening RMB bank settlement accounts, they shall present residence certificate with valid period at least one year issued by the Exit/Entry Administration Public Security Authority.
4. RMB borrowing from overseas in the Pilot FTZ
Financial institutions and enterprises in the Pilot FTZ may borrow RMB funds from overseas (excluding trade credits and intercompany operational financing) to use in the fields that are in line with national macro-control direction. Such funds temporarily cannot be used to invest in securities (including assets management products such as wealth management products), derivatives, or used for entrust loans purpose.
(1) The balance of RMB fund borrowed from overseas by the enterprises in the Pilot FTZ shall not exceed the ceiling amount which is calculated as: paid-in capital*1 time*macro prudential policy parameters. The paid-in capital shall be determined based on the latest capital verification report and the loan term shall be more than one year. These enterprises may, according to rules under the "Administrative Measures on RMB Bank Settlement Accounts", open dedicated deposit account in the banks in Shanghai to deposit the RMB funds borrowed from overseas only, and such funds can only be used within the Pilot FTZ or overseas, including production and operation in the Pilot FTZ, projects construction in the Pilot FTZ and overseas projects constructions etc.
When the foreign invested enterprises that were set up before the launch of the Pilot FTZ borrowing RMB funds from overseas, it's at their discretion to elect to follow the previous method to determine the quota (i.e. the ceiling amount is calculated as the difference between the total investment and the registered capital) or apply the rules under this notice. This election shall be filed with Shanghai Head Office of the People's Bank of China through the bank where they open their accounts. Once an election has been made, no change shall be made.
(2) The balance of RMB fund borrowed from overseas by the non-banking institutions in the Pilot FTZ shall not exceed the ceiling amount which is calculated as: paid-in capital*1.5 times*macro prudential policy parameters. The loan term shall be more than one year. Such funds may re-deposited in the dedicated deposit accounts opened in the banks in Shanghai and can only be used within the Pilot FTZ or overseas, including operation in the Pilot FTZ, projects construction in the Pilot FTZ and overseas projects constructions etc.
(3) The interest of the RMB funds borrowed from overseas and then retained in the dedicated deposit account opened by the enterprises and non-banking financial institutions in the Pilot FTZ shall be calculated at the rate of current deposit.
(4) The RMB funds borrowed by the banks in the Pilot FTZ must be diverted to the separate unit in the Pilot FTZ and used within the Pilot FTZ for real economy construction purpose.
(5) The macro prudential policy parameters contained in above formulas will be set by the Shanghai head office of People's Bank of China, and may be adjusted flexibly according to requirement of national credit control.
5. Cross-border two-way RMB cash pooling in the Pilot FTZ
(1) According to operation and management needs, enterprises in the Pilot FTZ may launch a cross-border two-way RMB cash pooling within the group. A "group" shall refer to a multinational group of companies including an enterprise (including finance company) in the Pilot FTZ, consisting of related parties connected mainly by capital, such as parent companies, subsidiaries, companies with capital participation etc. The cross-border two-way RMB cash pooling refers to the two-way cash pooling among the domestic and overseas affiliated enterprises within the group. It shall be regarded as an operational financing activity within the group.
(2) To undertake cross-border two-way RMB cash pooling, the group headquarters shall designate an operating or investing member enterprise (including a finance company) which is incorporated in the Pilot FTZ, and choose a bank to open one RMB dedicated deposit account for undertaking cross-border two-way cash pooling only, the funds in which must be separately accounted for. Each domestic and overseas party participating in cash pooling shall enter into cash pooling agreement, defining their respective duties and obligations in anti-money laundering, anti-terrorism financing and anti-tax evasion.
(3) Funds flow from parties whose cash were pooled to parties pooling the cash are considered as "upstream flows"; while funds flow from parties pooling the cash to parties whose cash were pooled are considered as "downstream flows". The RMB funds in the upstream and downstream flows shall be generated from production and operation, as well as industrial investment by enterprises. Cash flows generated by financing activities shall not be pooled for now.
6. Centralized payment and receipt of cross-border RMB under current account in the Pilot FTZ
(1) According to operation and management needs, enterprises in the Pilot FTZ may receive and make current account payments of cross-border RMB on behalf of its domestic and foreign related parties on a centralized basis. Domestic and overseas related parties include member companies connected mainly by capital, and by investment-based relationships, as well as the non-group members that have supply-chain and close business relationships with the group.
(2) The group headquarters shall designate an operating or investing member enterprise (including a finance company) which is incorporated in the Pilot FTZ, and choose a bank to open one RMB dedicated deposit account for centralized payment and receipt of cross-border RMB under current account on behalf of its domestic and overseas related parties.
(3) The enterprise in the Pilot FTZ shall enter into agreement of centralized payment and receipts under current account with each party that is making such arrangement with them, defining respective responsibilities in respect of the trade authenticity.
7. Cross-border e-Business RMB settlement
(1) The banks in Shanghai are encouraged to directly provide cross-border RMB settlement services based on genuine e-Business transactions to institutions running cross-border e-Business that are incorporated in the Pilot FTZ.
(2) The banks in Shanghai are supported to cooperate with Pilot FTZ payment service institutions (including branches) which hold "Internet Payment Business Permit", to provide cross-border RMB settlement services based on genuine e-Business transactions (including transactions by individuals and operating entities engaged in cross-border e-Business exports).
(3) The bank shall enter into agreements with payment service institutions in respect of processing cross-border e-Business RMB settlement, and shall file the agreement with the Shanghai head office of People's Bank of China. The bank shall verify the authenticity and compliance status of the underlying transaction of the cross-border RMB settlement business processed through payment service institutions. The cross-border RMB settlement business forwarded to banks by the payment service institutions shall be equipped with genuine cross-border e-Business transaction background, shall be in accordance with the relevant state laws and regulations. The payment service institutions shall perform verification duties concerning anti-money laundering, anti-terrorism financing and keep corresponding transaction record, as well as coordinate with relevant state departments to undertake inspection.
(4) The payment service institutions shall conform to the "Administrative Measures on Non-financial Institutions Payment Service" (Order of the People's Bank of China  No. 2), "Deposit and Management Measures on Payment Service Institutions' Client Reserves" (Bulletin of the People's Bank of China  No. 6) and other relevant regulations.
8. Cross-border use of RMB in trading service
(1) The China Foreign Exchange Trade System (CFETS) (also being the National Interbank Funding Center) will provide RMB-quoted/denominated financial assets transaction services in the Pilot FTZ for traders in the FTZ and overseas to promote the cross-border use of RMB.
(2) The Shanghai Gold Exchange (SGE) will provide RMB-quoted/denominated precious metal trading, delivery and settlement services in the Pilot FTZ for traders in the Pilot FTZ and overseas, promoting the use of RMB in international precious metal market.
9. Information reporting and submission
All cross-border RMB business and receipt/payment information shall be reported and submitted to RMB cross-border receipt and payment information management system in an accurate, complete and timely manner, and shall be processed for corresponding international payments statistics reporting.
10. Anti-money laundering, anti-terrorism financing and anti-tax evasion
When banks provide relevant cross-border RMB services to financial institutions and enterprises in the Pilot FTZ, they shall specify in the service agreements that each party shall fulfill the obligations and duties concerning anti-money laundering, anti-terrorism financing and anti-tax evasion as stipulated in relevant regulations, shall keep relevant transaction records and vouchers, and make sure the original appearance of transaction can be restored, as well as coordinate with the relevant departments to conduct inspections.
The Shanghai Head Office of People's Bank of China
20 February 2014