THE Shanghai government has a blue-ribbon advisory panel of global corporate executives who meet in the city once a year to exchange views on economic reform progress.

This year, the new Shanghai pilot Free Trade Zone was the focus of the 26th forum of the mayor’s International Business Leaders’ Advisory Council, which met on November 2.

The zone has become a principal focal point for overseas companies seeking to start or expand business in China. At the forefront are banks.

Jerry Zhang, chief executive officer of Standard Chartered Bank China, said foreign banks, though still much smaller in size compared with their Chinese counterparts, sit at the vanguard of financial reforms in the zone.

Zhang has held a variety of senior positions at the UK-based bank in China since she joined the financial institution in 1994. Her expertise includes wholesale banking and non-banking financial business. She holds an MBA from Lancaster University in the United Kingdom.

During an exclusive interview with Shanghai Daily, she discussed how financial innovation in the Free Trade Zone benefits clients and the further progress that the bank would like to see in financial deregulation.

Q: How does Standard Chartered Bank assist corporate operations through financial innovation?

A: Standard Chartered Bank is at the front-end of FTZ-based banks in terms of innovative products and the speed of launching new services. For example, we’ve set up a non-quota-based cash sweeping structure for Baoxin Auto Group, the biggest BMW dealer on China’s mainland. We were honored to receive the innovation award from the management committee of the FTZ for that.

The new treasury management tool is very helpful for the company because it can largely improve cash efficiency by centralized management, which effectively lowers financing costs. Part of a company’s outside funding needs, such as bank loans, can be met by internal capital deployment via this tool.

Our customer base in the FTZ is growing very fast. The number gives credence to the view that companies think the new tool is beneficial. Currently we have supported nine clients including Baoxin for their yuan two-way cross border sweeping transactions in the FTZ. Our clients come from quite a spectrum of industries, including automobiles, trade, food and beverage, chemicals, coal and electronics. We are exploring ways to provide further services for more FTZ customers in different industries.

Q: Do you think rising demand for cross-border financing has been driving the increase of funding costs in offshore markets?

A: That’s part of the reason but not the main one. The main reason is that there are more investment alternatives in offshore markets, which broaden the channels of yuan flows. We are seeing rising dim sum bond issuance. When clients have alternative channels to invest in yuan, it pushes up the deposit rate at banks. An increasing number of Chinese banks are beginning to establish branches overseas. Competition for deposits among banks will also raise interest rates. So the hike in funding prices is mainly due to these market changes.

Q: Do you think the government has done enough in cutting red tape in the FTZ?

A: All reforms are long journeys, and every journey has to have a first step. So if you ask me whether the government has cut some red tapes for FTZ business, the answer is yes. Let’s take the cross-border cash pool we completed for Baoxin as an example. It was launched immediately after the release of the People’s Bank of China Shanghai Headquarters’ notice on supporting the FTZ and promoting yuan cross border business on Feb 20, which allows banks in the FTZ to approve non-quota based two-way cross border sweeps without the central bank’s sign off. It is such a milestone initiative that banks have complete freedom in reviewing their customers’ profiles and granting approval for such transactions, while regulators give directional guidance instead of enforcing administrative control. It’s very clear that the government is moving in a more market-driven direction and we welcome that the authorities are taking such a progressive view.

Q: What developments in the FTZ does your bank expect to see?

A: As a foreign bank, we wish to be more involved in the consultation period and be a bridge between regulators and corporates. We can help decision makers to understand real-time market needs, and in turn, advise corporates to interpret the policies better so they can adapt swiftly and optimize their operation closely in line with new regulations. Again look at Baoxin’s cross-border cash pool as an example; the deal was able to be completed the same day immediately after the notice was announced precisely because there had been seamless cooperation between the authorities, the company and the Bank. Going forward, we will continue to work closely with regulators and our clients to innovate on yuan-related financial products to support the financial transformation of the PFTZ, realize true value for companies, and further promote the progress of yuan internationalization.

We look forward to additional new policies and the clarification of more policies. Every clarification makes a difference. Currently we serve nine companies on their cross-border cash pool needs, and with the further clarification and enforcement of the regulations, we hope to serve 10 times more of our clients on their increasingly sophisticated requirements. The primary objective of the FTZ should be to facilitate companies and make it more convenient for them to operate in the zone. We will focus on how to develop better products for client risk control and we might introduce some advanced hedging products from overseas markets. The FTZ will be a gateway for clients to access those products.

The construction of a legal framework and a more transparent system will be another important element. The construction of the legal system plays a key role in strengthening the spirit of commercial contracts. A sound judicial system will assure commercial institutions by protecting the spirit of contracts, and further promote the intension of investment. Under sophisticated legal provisions and the implementation of legal enforcement for trading partners, the responsibilities and interests of both sides will be fully protected.

Q: What developments in the FTZ do your global clients want to see?

A: For clients, it’s very simple. They move with policy changes. If it’s beneficial for their operations, they will follow.

The cash pool has been one thing global clients have always wanted. Free capital flow is the core foundation of efficient cash deployment around the world, and clients will always want the system to give them more, at a faster pace, with enhanced convenience and less control on hedging tools.