Financial reform package for FTZ by central bank
Print Edition
China’s central bank yesterday proposed a financial reform package for the Shanghai pilot free trade zone to facilitate cross-border trade and investment.
Economists hailed the document as “ground-breaking” progress in China’s financial reform, revealing a resolution to accelerate long-anticipated interest and exchange rate reforms with a prudent stance.
China will for the first time allow free fund transfers between free trade zone and offshore bank accounts, allow qualified foreigners working in the zone to trade domestic equities, allow qualified residents in the zone to invest in the foreign securities market, and allow foreign companies with branches in the zone to issue yuan bonds onshore, the People’s Bank of China said in an “opinion,” a Chinese expression for a directive.
The zone, launched in late September and covering 28 square kilometers in the Pudong New Area, has pledged to push for “a full-scale opening” of the financial services sector to eligible private capital and foreign financial institutions.
The package released yesterday includes 30 measures in the field of management of free trade accounts, cross-border investments and transactions, yuan cross-border usage, interest rate liberalization and foreign exchange management reform.
Pre-approval requirements will be scrapped for companies in the zone to conduct cross-border settlement and exchange deals, and financial institutions in Shanghai will be able to open free trade zone accounts to serve companies registered in the zone, the central bank said.
In terms of interest rate reforms, financial institutions in the zone will be the first to pilot issuance of negotiable certificates of deposit to introduce a market mechanism in pricing cash.
The ceiling of interest rates for foreign currency deposits will be lifted when “time is ripe.”
But the statement did not give a timetable for any of the measures or specific details such as the definition of “residents,” “qualified” and “ripe” conditions.
“The PBOC will initiate implementation of the measures after settling on the details sticking to the principle of controllable risks and steady progress,” the statement said.
Economists at the Australia & New Zealand Banking Group said in a report yesterday that the central bank’s directive offers an overall framework for China’s capital-account liberalization and sets the overall direction to promote interest-rate liberalization.
“The PBOC opinion signifies a ground-breaking advancement of China’s capital account reforms,” the report said.
“Meanwhile, the central bank seems to be aware of potential risks from ‘opening too much’ and remains cautious on aggressive capital account opening and interest rate liberalization,” it added.
Lu Zhengwei, chief economist at the Industrial Bank, said a highlight of the plan was liberating individual capital accounts and it illustrated the benefits for companies setting up branches in the zone.
“Domestic units will be able to invest overseas, get financing from offshore sources, trade offshore financial derivatives, and facilitate foreign exchange management by starting intra-group cash polling business,” Lu said.
Foreign companies in the zone will benefit from free investment in domestic equity market without quota restrictions, and easier issuance of yuan-denominated bonds.
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