PBOC announces rules for accounts in Shanghai's FTZ

The People's Bank of China released detailed rules on Thursday for the free trade account system in the China (Shanghai) Pilot Free Trade Zone, a step in the process of financial reform that will make it easier to raise funds and invest across the border.

The free trade account system enables full convertibility of the yuan and allows offshore financing in the FTZ.

The free trade account system will offer Chinese companies - especially those operating in the foreign trade sector - secure, low-cost yuan-denominated funding from offshore sources where financing costs are usually lower than in the Chinese mainland.

Under the free trade account system, the yuan and foreign currencies are managed under unified rules and can be converted automatically for an FTZ-registered enterprise with a single transaction.

Previously, conversion required multiple transactions under different rules.

Zhang Xin, head of the PBOC Shanghai Head Office, said the regulations are a key part of the overall reform process in the FTZ, as well as a big step in the process of opening up the nation's financial markets while keeping risks under control.

This move will significantly reduce the costs and time required to raise funds or make certain investments and make the capital allocation process more efficient, said Zhang.

The move also provides space for further reforms, as regulators of the securities and insurance markets can adapt the system for their own needs without waiting for the PBOC to announce further details.

Regulators have recently relaxed barriers to cross-border capital flows within the FTZ, giving FTZ-registered banks and companies more freedom in raising and using foreign exchange.

Last Friday, the PBOC announced that multinationals can open international and domestic accounts to handle foreign exchange transactions. Foreign capital can be transferred freely between international and offshore accounts.

The State Administration of Foreign Exchange started a similar trial in late 2012 to allow companies to manage their foreign exchange more efficiently. It decided to expand the trial across the nation on June 1 this year. In February, the PBOC approved two-way cross-border yuan flows in the FTZ to meet working capital needs.

Market insiders and analysts said these moves will help lenders and enterprises to better use funds and expand opportunities beyond the zone.