Foreign banks are anxiously awaiting further policy clarification about Shanghai’s new pilot free trade zone after deciding they can’t afford to shun what is being viewed as the hottest reform spot in China.

The zone is a pilot project set up by the national government in Pudong to experiment with further reform, deregulation and market-oriented policies.

Loh Long Hsiang is general manager of Standard Chartered Bank’s Shanghai branch, which is in charge of the new sub-branch opened for business in the free trade zone last month. He is also head of CEO office, assisting China CEO in driving the overall agenda in the country.

Loh has been with the London-based bank, which makes most of its profit in Asia, for 17 years in assignments in Hong Kong, Singapore and Shanghai.

He talked with Shanghai Daily about progress to date in the zone and where global companies hope to see further change.
 
Q: What are Standard Chartered Bank’s main businesses in the free trade zone? Any new products or services in the pipeline?

A: Standard Chartered Bank is one of the leading global banks. We have an extensive network covering more than 70 markets all over the world, and we have comprehensive products from basic lending, cash management, trade to financial markets and corporate finance products. We are also very experienced in delivering capital markets services to our global clients.

The pilot free trade zone is a big step in China’s opening up of its financial market, but there’s still some way to go. As more clarification comes through from regulators, we will use our wealth of international and product experience to launch new products and services accordingly.

Standard Chartered was among the first to launch the two-way yuan cash sweeping on China’s mainland. We’ve set up the structure for Baoxin Auto Group, which is the biggest BMW dealer on the mainland. The two-way cash pool with a non-quota-based cash sweeping structure supports the company’s cross-border needs for liquidity and trade settlement in Chinese yuan. It allows the company to allocate funds within the group more efficiently. The company can deploy its idle capital more effectively to achieve better cash management, which lowers their cost.

Apart from the two-way cash sweeping and yuan settlement, we are also exploring opportunities to assist companies in raising yuan overseas.
 
Q: What’s your major concern when introducing new products and services to clients?

A: We will always be focus on our clients’ needs and to make sure we do not just sell products but actually offering financial solutions that are suitable and appropriate for them. Even with the launch of the free trade zone, the clients will need some time to understand the implications and opportunities for them. To multinational companies that may be considering Shanghai as their regional headquarters or treasury center, we, as a leading international bank, are in a good position to provide them with information and comparison with other regional hubs like Singapore and Hong Kong so that they can make the best decision.
 
Q: The management committee of the zone said new implementation rules for the free trade account system will be released during the first half to allow full convertibility of the yuan and offshore financing in the zone. Does the bank have a strategy related to that move?

A: We are aware of it but will still have to wait for more details to be released on this. As I said before, it takes time for the customers to know and accept new things. Our bank put in a lot of effort to update our clients in China as well as overseas on the latest development in the zone as well as to work together with them on financial solutions that they will want to have. This may involve the bank working with the regulators and clients to pilot some new financial solution.
 
Q: In your discussion with the customers regarding the free trade zone, which aspects interest them most?

A: The companies generally look forward to relaxation and simplification of trade and investment rules and procedures. They are also interested in how funds can flow more freely within their group companies, in and out of China, for example better liquidity management. From a risk management point of view, customers are always interested to be introduced to more diversified range of products that can help them manage their risks better, for example interest rate, foreign exchange, and commodity price risk. As China’s financial reforms pick up speed, we will play our part in the whole process.
 
Q: What do you think attracts foreign companies in deciding to set up branches in the free trade zone?

A: They will naturally compare with other hubs like Singapore and Hong Kong. They will consider areas like administrative efficiencies and cost, talent pool, ease of funds flow, financing cost and so on. The biggest advantage to be in Shanghai and the new free trade zone is that there is a huge domestic China market behind this. Any multinational companies that want a pie in the second biggest economy (and fast growing) in the world will benefit by setting up an entity within China.  There is no better place than Shanghai and the free trade zone to do that as the zone is an attempt to bring China closer to international standards and norms that many of the multinational companies are familiar with.
 
Q: Do you think the competitive environment inside the free trade zone will be greater than that outside the zone?

A: Competition will always be there but we must understand that foreign banks like ourselves have different strategies from Chinese domestic banks. The target customers are at times different too. With China continuing to grow at a reasonable pace, we believe the overall pie is big enough for everyone. At Standard Chartered, we know where our strengths are and we will play to that.  Our strengths are in our international network, wide product range and deep international experience. Together with our good local China knowledge, we can help Chinese companies to go abroad as well as international companies to come to China.
 
Q: It’s been more than six months since the free trade zone was officially opened. How would you assess its development to date?

A: The free trade zone is a big step in the process of China reform. It is not just about financial reforms but also around bringing about procedures and investment simplification and efficiencies. I feel that a lot has been achieved by the zone in the six months. There have been many reform details released in the last six months on relaxation and simplification around trade procedures and investment rules, including the negative list. On the financial services front, you saw the lifting of the deposit rates for foreign currency deposits of US$3 million recently. This is a big step forward in the journey for interest rate liberalization. I believe more changes are coming and there will be further improvements, such as a shorter negative list. Although innovation is the central theme of the free trade zone, reckless development would be very risky. This should not be a short sprint but a long journey. We need to be mindful of the risks, such as the impact of hot money with full liberalization, and the stability of the whole system.  Therefore, it is better for the zone to develop at a steady pace under the premise that all risks can be managed.