Five lenders launch free trade accounts in Shanghai

Free trade accounts, which will enable some companies to secure cheaper yuan-denominated funding from off-shore markets, were launched on Wednesday in the China (Shanghai) Pilot Free Trade Zone.

The move was announced by the People's Bank of China Shanghai Head Office.

Analysts and market insiders said the launch represents a milestone in financial reforms within the FTZ to support trade and the financial market's opening up.

FTZ-registered enterprises and entities and overseas institutions may complete cross-border settlement for their checking accounts and direct investment accounts through these facilities.

These new accounts will promote widespread free trade investment and funding, with further details to be announced soon, according to the PBOC's office.

Five banks started the business on Wednesday, including Bank of China Ltd, Shanghai Pudong Development Bank Co Ltd and China Merchants Bank Co Ltd.

"Free trade accounts will help lenders to innovate while also monitoring risks more closely," said Chen Siqing, president of Bank of China.

For companies, these accounts will be a way to secure cheaper funding and discover investment opportunities.

"Free trade accounts will help State-owned enterprises (get funding more easily) and invest in overseas markets by reducing funding costs and promoting investment efficiency," said Zhuang Guowei, vice-president of Bright Food (Group) Co Ltd.

The convenience of these accounts will also benefit commodity trading activities, including precious metals and energy, said Zhang Xin, head of the PBOC Shanghai Head Office.

The Shanghai Gold Exchange signed a memorandum of understanding with the PBOC's office in Shanghai to launch an international gold exchange in the FTZ using the free trade account mechanism. This system will enable yuan-denominated trading of the precious metal in the zone.

The exchange has signed settlement cooperation contracts with four lenders: Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China and Shanghai Pudong Development Bank.

Qualified overseas clients and FTZ-registered clients may open free trade accounts with these four lenders and trade gold, according to Xu Luode, an executive of the SGE.

"We hope that the convenient capital flows enabled by the free trade accounts will also help Shanghai to become an intermediary trade hub for gold," said Xu.

More lenders will launch free trade account services after being cleared by regulators, said Zhang.