Capital reform lets individuals and firms in FTZ open trade accounts

CHINA yesterday allowed financial institutions in Shanghai to open a separate account for companies and individuals in the city’s free trade zone to facilitate cross-border money flow, laying a foundation for capital liberalization reforms in the zone.

Companies registered in the FTZ or Chinese and foreign individuals working there for more than a year can open free trade accounts with banks, insurers and brokerages in Shanghai with greater freedom to move money on- and off-shore, the Shanghai headquarters of the People’s Bank of China said in a statement yesterday.

It is part of widely-watched financial reforms in the zone as holders of free trade accounts will theoretically be allowed to transfer local currency and foreign exchange funds in and out of China without being subject to the strict capital controls that apply outside of the zone, according to the central bank’s blueprint unveiled in December.

Foreign companies can also open free trade accounts via financial institutions operating in the zone, the statement said. But for now, companies can only handle yuan transactions for trade and direct investment, the statement added.

“The aim of starting free trade accounts is to facilitate trade, investment and financing. The accounts can meet most financial demands of companies,” said Zhang Xin, deputy director of the PBOC’s Shanghai headquarters.

“The move lays the foundation for promoting convertibility under the capital account, but it is not equal to capital account liberalization.”

Capital account liberalization will be carried out in a gradual, staged and controlled manner, Zhang said.

The monetary authorities will assess progress of the free trade account operations in six months from now and choose “an appropriate time” to expand that to foreign exchange services, Zhang said.

Financial institutions can now start setting up fund management and risk control system for free trade accounts based on the PBOC’s requirements, including keeping a separate book for the accounts and setting up emergency response system in case of abnormal fund flow.