29 April 2016
New Rules on Expanding Cross-Border Use of Renminbi in Fujian FTZ
Almost a year after the establishment of the China (Fujian) Pilot Free Trade Zone (Fujian FTZ), the first set of detailed rules on expanding the cross-border use of renminbi is implemented in the FTZ.
Lately, different areas in the Fujian FTZ have received a circular from the local branch of the central bank informing them of the expanded scope of cross-border use of renminbi. The main points of the circular include: handling cross-border renminbi settlement for individuals in the FTZ, lowering the entry threshold for multinational corporations to conduct two-way cross-border renminbi cash pooling, facilitating enterprises operating in the FTZ to repatriate renminbi funds raised from issuing bonds offshore, and encouraging banks in the zone to extend renminbi loans offshore.
The rules encourage and support banks in the FTZ to extend renminbi loans to offshore entities and offshore projects according to actual needs and the principle of prudence in a bid to meet the demand of enterprises for local currency loans in their venture of “going out”. This move also facilitates enterprises to undertake offshore cooperation projects such as outward direct investment and overseas project contracting. It also signifies the FTZ’s first step in offering “two-way” cross-border renminbi loans.
Under the principle of authenticity and compliance, banks in the FTZ may provide cross-border renminbi settlement service under the current account or direct investment account for clients who are foreign and mainland individuals working or residing in the Fujian FTZ.
It is worth noting that before the new move, cross-border renminbi settlement for foreign individuals was restricted to trade in tangible products and in services.
The circular provides that all areas in the FTZ must, abiding by the principle of effective differentiation in account management, process applications for opening renminbi settlement accounts by qualified foreign and domestic parties for the handling of cross-border renminbi settlements stipulated in the circular.
In addition to relaxing restrictions on the investment account of foreign and mainland individuals, the new rules have also lowered the entry threshold for conducting two-way renminbi cash pooling business by 50% as well as raised the cap on cross-border capital inflows and outflows.
Specifically, under the latest rules, if a domestic or a foreign member company which has been operating in the FTZ for over one year wishes to participate in a two-way renminbi cash pool, its business revenue should be no less than Rmb500 million and Rmb100 million (in the previous year) respectively. These amounts are only half of the Rmb1 billion and Rmb200 million thresholds set outside the FTZ.
To support the above move, the ceiling of cross-border capital inflows/outflows has been raised, with the cap on net inflows/outflows raised to 100% of the owner’s equities appropriated for pooling. Before the rules were introduced, the percentage was 50%.
Under the new rules, it is now easier for enterprises in the FTZ to repatriate their renminbi funds raised from issuing bonds offshore. This can further facilitate parties in the FTZ to broaden their direct financing channels abroad and remit the funds thus raised to the mainland for use.
In other words, the rules allow parties issuing bonds offshore to repatriate the funds raised back to China for use according to actual needs. In this way, the scale of funds repatriated for use is under macro prudential regulation and it is no longer necessary to obtain approval from the People’s Bank for each and every sum remitted.