The long-anticipated detailed rules for capital-account transactions, which will allow companies operating in the China (Shanghai) Pilot Free Trade Zone to borrow abroad under a simpler regulatory regime, have been released.
The new process may help FTZ-registered companies cut their financing costs in half.
The announcement of the rules on Feb 12 means that the capital-account has effectively been opened for companies in the FTZ, said Zhang Xin, deputy head of the Shanghai Head Office of the People’s Bank of China.
The rules will allow FTZ-registered enterprises that borrow abroad to choose the length and currency of the loan.
FTZ-registered enterprises that seek financing overseas will be monitored by the PBOC during and after the financing process, but they will no longer need to seek prior approval.
“The detailed rules actually return many rights and initiatives to enterprises, enabling them to make their own financing decisions, while regulators just help to monitor the risks,” said Zhang.
“The new rules will benefit enterprises when doing foreign trade and overseas mergers. The new rules significantly reduce the time needed for completing the procedures, which could be as short as half an hour.”
“For a one-year yuan-denominated loan, the financing cost could be half of what it used to be,” said Wang Jianxin, head of the FTZ branch of Shanghai Pudong Development Bank Co Ltd.
The banking regulators promised a freer environment for financing to support foreign trade after the FTZ opened in September 2013.
Financial and nonfinancial enterprises registered in the FTZ will be able to borrow up to twice their capital base, which will be double the previous cap.
“For trading firms like us, the new rules have given us more freedom and space to obtain the financing that suits us best,” said Zhang Lei, finance director of an FTZ-registered wine trader.
The more liberal financial policies in the FTZ have already helped companies registered there reduce their financing costs.
PBOC data showed that so far, 120 overseas yuan-denominated financing deals with a combined value of 19.7 billion yuan ($3.2 billion) have been arranged.