Regulator clarifies details of FX rules for FTZ

The Shanghai branch of the State Administration of Foreign Exchange on Friday clarified details of new measures regarding the conduct of foreign exchange businesses in the China (Shanghai) Pilot Free Trade Zone, a move to further loosen capital controls and boost trade and financial services.

New measures introduced by the administration included loosening management over credit and debt, removal of cross-border guarantee approval requirements and raising the foreign currency loan caps of enterprises within the zone.

Zhang Xin, head of the administration's Shanghai branch, said the new measures will significantly improve the efficiency of capital use and ease fundraising for enterprises within the FTZ.

"The new measures reflect the philosophies and practices of foreign exchange administration," said Zhang, adding the administration will also strengthen cooperation with other administrations to realize effective risk controls to guard against systematic and regional financial risks.

Removal of cross-border guarantee approval requirements would help companies incorporated in China raise funds in the offshore markets and support their overseas expansion.

More companies should be able to issue guarantees to support their offshore debt.

Currently, it is difficult for Chinese companies to obtain the administration's approval to guarantee bonds issued by offshore subsidiaries. Allowing them simply to register their cross-border guarantees would allow more of them to issue these guarantees, according to a research note by Moody's Investors Service.

Lenders said the new measures will boost development of the growth of company headquarters within the zone and will benefit commodity trade within it.

Pan Yuehan, head of the Shanghai branch of Bank of China Ltd, said the new measures have made a breakthrough in the administration of exchange settlement.

"In the past enterprises needed to apply for approval for exchange settlement when faced with demand. Now, under the new measures, which enable settlement at willing, enterprises can make deposits after settlement, which helps enterprises to hedge exchange risks," said Pan.

Pan said he expects new measures to boost investment and trade, especially regarding commodities such as fuel and non-ferrous metals.

Tu Guangshao, vice-mayor of Shanghai, said there will be more detailed policies and measures to be introduced to boost trade and financial services in the FTZ.

"The new measures will help lenders to improve their services and improve their competencies," said Tu.

The vice-mayor added that these efforts and the effects of pushing forward financial market reforms in the FTZ are aimed at helping trade within the zone and to producing experiences that can be duplicated throughout China in the future.