New pilot finance zone being set up in SW China

China approved a new financial reform pilot zone to push for co-operation with ASEAN nations

A financial reform pilot zone will be established in Southwest China in a move designed to strengthen ties with South and Southeast Asian countries, it was disclosed on Tuesday following the announcement of financial measures at the Third Plenary Session of the 18th Central Committee of the Communist Party of China earlier this month.

The Yunnan-Guangxi border pilot zone for comprehensive financial reforms was approved by the People's Bank of China, the central bank, last Thursday. It will include nine cities and prefectures in Yunnan province and six cities in the Guangxi Zhuang autonomous region, covering an area of 317,700 square kilometers with a population of 44 million.

Seven of the Yunnan cities and prefectures in the pilot plan share a border of more than 4,000 km with Vietnam, Laos and Myanmar, while the pilot cities in Guangxi neighbor Vietnam.

Since 2012, several financial reform pilot zones have been established in places such as Shanghai, Wenzhou in Zhejiang province and Shenzhen in Guangdong province. The Third Plenary Session said reform and innovation are keys to the nation's economic development, and the country will vigorously promote reform of the financial market.

The pilot zone aims to cultivate innovation in cross-border renminbi settlement and improve local financial systems.

The zone also should accelerate new rural financial products and services; promote trade and investment; bolster cross-border cooperation in financial infrastructure; and improve local financial management systems.

Meanwhile, a risk prevention mechanism will be established along with financial reform and cross-border financial cooperation and exchange mechanisms, the pilot zone guideline said.

According to the guideline, the zone will be devoted to the regionalization of the renminbi. In addition, Southeast Asian financial institutions will be encouraged to set up branches in Yunnan and Guangxi.

The zone will also develop diverse and well-regulated capital and insurance markets in urban and rural areas, the guideline said.

Zhou Xiaochuan, governor of the People's Bank of China, regards the pilot zone as a significant move by the central government to implement the reform decisions made at the Third Plenum.

"Yunnan and Guangxi have the longest borderline and coastline, which give the two places a unique advantage to build an international financial network," Zhou said in Kunming while meeting with leaders of Yunnan and Guangxi on Monday.

The Association of Southeast Asian Nations is the largest trading partner for Guangxi and last year saw the highest increase for Yunnan's trade with ASEAN countries, said Pan Gongsheng, vice-governor of the central bank. "Therefore, the pilot zone should coordinate all the financial resources to promote foreign exchanges with the ASEAN and form a closer trading tie with these nations," he said.

At a conference in Kunming on Tuesday, Chen Yuan, vice-chairman of the National Committee of the Chinese People's Political Consultative Conference, said the Yunnan-Guangxi pilot zone, as the largest in the country, represents the determination of the central government to enhance cooperation with Southeast Asian countries, which President Xi Jinping specifically referred to in a speech in Indonesia last month.

Liu Guangxi, director of Yunnan's financial office, said a modern financial system is the foundation for local economic development and trade with neighboring countries.

Liu said in a previous interview that negotiations with Southeast Asian banks to introduce them into Yunnan are underway and that at least five Southeast Asian banks are interested in setting up branches in Kunming.

In June 2011, Fudian Bank, a major local commercial institution in Yunnan, started a direct exchange of yuan with kips of Laos and bahts of Thailand, saving time and facilitating operations on both sides, Liu said. Meanwhile, Pacific Securities Co Ltd has established a branch in Laos.

Fudian Bank was allowed to upgrade its representative office in Laos to an operational institution, the only one of 146 commercial banks to have an overseas branch, Liu said.

"In the next step, we will directly trade with other currencies in the ASEAN countries such as Vietnamese dongs, Myanmar kyats and Cambodian riels," Liu said.

Liu said Yunnan was one of the first areas to develop financial cooperation with neighboring countries in 2012. In the 1990s, Hekou county in the Honghe Hani and Yi autonomous prefecture began directly exchanging yuan with Vietnamese dongs. Subsequently, other towns such as Ruili and Tengchong also began a trial of directly exchanging renminbi with Myanmar kyat.

As of November, the volume of cross-border renminbi settlement exceeded 40 billion yuan ($6.5 billion). The total volume has reached 120 billion yuan in the past three years, according to Liu.

Qin Guangrong, Party chief of Yunnan, said the province's financial sector has grown fast in the past 10 years. Fixed asset investment increased to 1 trillion yuan in the province this year, from less than 80 billion yuan in 2002, thanks to the expansion of the financial sector, he said.

"However, our financial system also has some shortcomings. Major national banks haven't set up branches in all counties. For example, the Agricultural Bank of China Ltd only covers half of the townships in the province," Qin said. Therefore, the pilot zone is a huge motivation for the local financial system.

At the Kunming conference, officials from Beijing offered input on the pilot zone. Tian Jinchen, director-general of the fiscal and financial affairs department of the National Development and Reform Commission, said the reform should help small and medium-sized companies and encourage entrepreneurship. Since 2008, more than 530 small-loan companies are operating in Yunnan, the third-largest number in the country, to support small and medium-sized enterprises.

Li Kuiwen, deputy director of the research office of the General Administration of Customs, said the administration has signed cooperation memorandums of understanding with the provincial government of Yunnan to shorten the time for getting through customs.

Tong Daochi, director of international cooperation at the China Securities Regulatory Commission, said the 28 listed companies in Yunnan have financed 75 billion yuan in China's stock market, giving them a huge advantage for expanding business in neighboring countries. The China Securities Regulatory Commission also will provide technical assistance to Vietnam and Laos to establish securities markets.

"We hope the companies in Yunnan and Guangxi can make the best of the preferential policies of the pilot zone to invest in Southeast Asian countries and jointly found securities companies with these countries," Tong said.