Companies and financial institutions in Shanghai’s free trade zone are now allowed to borrow from overseas in both Chinese and foreign currencies with greater flexibility, another step toward capital account convertibility in FTZ financial reforms, the Shanghai headquarters of the People’s Bank of China said yesterday.
Companies, banks and brokerages will not need to apply for administrative approval to borrow from overseas under the special free trade account system used in the zone, the Shanghai headquarters said as it released regulations regarding offshore financing and risk management.
They will be allowed to raise up to twice the value of their registered capital but the actual amount of money they can get will depend on the currency, its use and the term of the loan.
For example, companies will not be able to use their full quota if they borrow foreign currency loans on terms shorter than a year, the Shanghai headquarters said.
Previously, non-financial companies were only allowed to borrow yuan from overseas and the amount was restricted to no more than the registered capital of the company.
Banks previously were not allowed to borrow yuan from overseas.
The move is part of the authorities’ efforts to boost the economy by lowering borrowing costs for companies and banks, and is a step toward capital account convertibility as the rules set up a unified management system for offshore fundraising in local and foreign currencies, said Zhang Xin, the Shanghai headquarters’ deputy director.
The new policy could further lift Shanghai’s status as a financial center as the area of the Shanghai free trade zone is planned to quadruple to cover the Lujiazui financial area, Jinqiao development area and Zhangjiang High-Tech Park, Zhang said.
Wang Jianxin, deputy head of Shanghai Pudong Development Bank’s free trade zone branch, said the new rules will enable borrowers to get low-cost foreign currency loans within half an hour, and companies will enjoy greater freedom during cross-border trade and investment.
The annual interest rate for a foreign currency loan could be half that of a one-year loan in yuan, Wang said.
It is the first time foreign currency transactions are being allowed under the free trade account system, and the bank said it will continue to drive financial reforms including capital account convertibility and interest rate liberalization in the zone.
It said offshore fundraising regulations for companies are basically complete after yesterday’s announcement and it will consider opening up individual offshore borrowing.