Opinions of People's Bank of China to Support China (Shanghai) Pilot Free Trade Zone in Financial Sector

To implement the key strategy of the Central Committee of the Communist Party and State Council on establishing the China (Shanghai) Pilot Free Trade Zone (hereinafter as the "Pilot Zone"), promote the development of real economy in the Pilot Zone, increase support to cross-border investment and trade, deepen the financial reform and further open up to foreign investors, the following opinions are hereby issued.

1. General principles

(1) Finance should always serve real economy by further facilitating trade and investment, opening up the financial sector to foreign investors, and elevating the Pilot Zone to a higher level to participate in the international competition.

(2)We should stick to the reform and innovation, dare to pilot, and in particular, promote the cross-border use of RMB, RMB’s convertibility under capital account, interest rate liberalization and reforms in foreign exchange administration.

(3) We should keep the risk under control and steadily progress the reform; any reform measure should not be launched until conditions permit and pilot should be carried out in a timely and organized manner.

2. Innovation in bank account system to facilitate risk management

 (4)A resident in the Pilot Zone may open a domestic/foreign currency free trade account (hereinafter as the "Resident FTA"), which will be accounted for and managed separately, so as to carry out innovative business in respect of investment and financing as described in Section 3 of the opinions. A nonresident may open a domestic/foreign currency free trade account (hereinafter as the "Nonresident FTA") with banks in the Pilot Zone and is granted to the relevant financial services pursuant to the national treatment principle.

(5)Free fund flow is allowed between a Resident FTA and an overseas account, a domestic nonresident account but opened outside the Pilot Zone, a Nonresident FTA or another Resident FTA. Fund flow between Resident FTAs and settlement accounts in other banks of the same non-financial entity is allowed if the fund flow is for the purposes of current account transaction, loan repayment, industrial investment and other qualified cross-border trading activities. Fund flow between a Resident FTA and an onshore bank settlement account but opened outside the Pilot Zone is deemed as cross-border fund flow for management purposes.

(6) Cross-border financing and guarantee businesses may be carried out through Resident and Nonresident FTAs. Domestic and foreign currencies in such accounts will be freely convertible when conditions permit. A system will be established to monitor the status of RMB conversion in Resident and Nonresident FTAs.

(7)Pursuant to regulations of the People's Bank of China (hereinafter as the "PBOC"), financial institutions in Shanghai may, by establishing a separate unit to account for the FTAs (hereinafter as the "Pilot Zone Unit"), help qualified Pilot Zone entities open FTAs and provide relevant financial services.

3. Exploration of a convertibility administration system to facilitate financing and investment

(8)Promote institutional cross-border direct investments: For the purpose of cross-border direct investments made by Pilot Zone investors, relevant parties may directly arrange the receipt or payment of the funds, currency conversion with banks without obtaining pre-approvals pursuant to relevant regulations in Shanghai.

(9) Facilitate individual cross-border investments: Qualified individuals who are working in the Pilot Zone may make various outbound investments including investments in securities pursuant to relevant regulations. Legal income derived by individuals from the Pilot Zone may be remitted to overseas after tax clearance. Individual industrial and commercial households within the Pilot Zone may extend loans to their overseas business entities according to the business needs. Qualified foreign individuals who are working in the Pilot Zone may open nonresident individual accounts with Pilot Zone financial institutions to make various domestic investments including investments in securities pursuant to relevant regulations.

(10) Steadily open up the capital market: Financial institutions and enterprises in the Pilot Zone may conduct investments and trading in securities and futures exchanges in Shanghai pursuant to relevant regulations. Foreign parent companies of Pilot Zone enterprises may issue RMB bonds in domestic capital market according to relevant laws and regulations. Trading of international financial assets in the Pilot Zone will be explored pursuant to the market needs.

(11) Facilitate financing from overseas: According to business needs, Pilot Zone institutions (including Chinese or foreign-funded enterprises, non-banking financial institutions and other economic organizations registered in the Pilot Zone) may borrow funds from overseas in domestic or foreign currencies pursuant to relevant regulations. The macro-prudential management system on the overall status of foreign debts will be improved with effective measures introduced to control the foreign debt risk.

(12) Offer diversified risk-hedging tools: Based on real management needs in respect of matched-currency or maturity, Pilot Zone institutions may conduct risk hedging within the Pilot Zone or in overseas pursuant to relevant regulations. Qualified Pilot Zone enterprises may be allowed to make foreign securities and foreign derivative investments pursuant to relevant regulations. A Pilot Zone Unit's open positions arising from free currency conversion with institutions in the Pilot Zone and overseas should be closed or hedged in the Pilot Zone market or in overseas. A Pilot Zone Unit may participate in derivative trading in international financial markets to control its own risk. Subject to approvals, a Pilot Zone Unit may conduct inter-banking lending or repos in the domestic inter-bank market within approved amounts.

4. Enhancement of cross-border use of RMB

(13) Based on the three principles (i.e. "Know your client", "Know your business" and "Due diligence"), for items under current accounts or direct investments, banking institutions in Shanghai may directly arrange cross-border RMB settlements for Pilot Zone institutions and individuals (except for those entities on a monitoring list for cross-border RMB settlement purpose) according to their fund receiving or payment instructions.

(14) Banking institutions in Shanghai may cooperate with Pilot Zone payment service institutions which hold "Payment Business Permit" and whose business scope includes online payment service, and provide RMB settlement service to cross-border e-Business (goods or service) pursuant to relevant payment service policies.

(15) Financial institutions and enterprises in the Pilot Zone may borrow RMB funds from overseas. Such RMB funds cannot be used to invest in securities, derivatives, or used for entrust loan purpose.

(16) According to business needs, enterprises in the Pilot Zone may launch a two-way RMB cash pooling within the group to carry out a centralized payment and receipt under current account for their domestic and overseas related parties.

5. Steady progression of interest rate liberalization

(17) The establishment of a liberalized interest rate system within the Pilot Zone will be carried out according to the relevant conditions.

(18) The monitoring mechanism on the market pricing of interest rate for the funds of Resident and Nonresident FTAs in domestic and foreign currencies will be further improved.

(19) Qualified financial institutions in the Pilot Zone will be added to the list of institutions which may be allowed to issue large-denomination negotiable certificate of deposit with priority. The issuance of large-denomination negotiable certificate of deposit will be piloted in the Pilot Zone.

(20) When conditions permit, the ceiling of interest rate for small-denomination deposits in foreign currencies under general accounts will be lifted in the Pilot Zone.

6. Deepening reform in foreign exchange administration

(21) Support development of headquarter economy and new trade forms: The pilot scope of multinational headquarters which are allowed to manage their foreign exchange on a centralized basis will be expanded. The administration of foreign exchange cash pooling will be further simplified. The pilot of foreign exchange administration for international trading and settlement centre will be enhanced to facilitate the trading and investment.

(22) Simplify the foreign exchange registration formalities for direct investments: The foreign exchange registration under direct investments and relevant changes will be delegated to banks, with subsequent supervision being strengthened. Based on the conditions that the authenticity of relevant transactions are ensured and complete information has been collected, foreign exchange funds under foreign direct investment may be converted to RMB according to the enterprise's wishes.

(23) Support domestic and overseas leasing service in the Pilot Zone: The foreign credits approval requirement on transaction basis for finance leasing companies engaged in foreign leasing will be replaced by a registration management system. Subject to approvals, finance leasing companies in financial system (which are under administration of the Chinese Banking Regulatory Commission) and Chinese-funded finance leasing companies may be allowed to receive rental payments in foreign currencies for domestic finance leasing business. The procedures for pre-payments in large finance leasing projects (i.e. aircrafts, ships) will be simplified.

(24) The pre-approval for payment of guarantee fees to overseas parties by Pilot Zone institutions will be removed; Pilot Zone institutions may directly purchase the foreign exchange and make the payment with the bank.  

(25) The administration on selling and purchase of foreign exchange will be improved. Banks are supported to carry out over-the-counter transactions of commodity derivatives for domestic clients.

7. Monitoring and administration

(26) Pursuant to relevant laws and regulations, financial institutions and specified non-financial institutions in the Pilot Zone should fulfill their obligations in respect of anti-money laundering, anti-terrorism financing, anti-tax evasion, etc, submit their balance sheets with relevant business information to the PBOC and other financial regulatory departments in a timely, accurate and complete manner, arrange the statistics and reporting of international receipts and payments, and co-operate with financial regulatory departments to closely monitor any irregularities in cross-border cash flows. 

(27) The Shanghai Municipal Government may supervise non-financial institutions in the Pilot Zone by establishing a comprehensive information monitoring platform, perform an annual assessment for such institutions, and adopt a categorized administration approach based on the assessment results.

(28) The Pilot Zone Unit will be taken into account in calculating the capital adequacy ratio of the legal entity bank which set up the Unit. The liquidity management of the Unit should be based on a self-balance principle and funding support may be provided by the bank at a upper level when necessary.

(29) A macro-prudential financial management system will be implemented in the Pilot Zone. The PBOC may strengthen the monitoring of short-term speculative capital flows in the Pilot Zone and take temporary measures due to certain circumstances. The PBOC will strengthen the communication and coordination with other financial regulatory departments and ensure the information sharing in a timely and complete manner.

(30) Based on the principle to keep the risk under control and steadily progress the reform, the PBOC will formulate implementation details and coordinate with other financial regulatory departments on administrative issues.