Signs of easing in the trade tensions with the US and a resulting stabilisation of the renminbi (RMB) has persuaded China to slightly ease its capital and foreign exchange controls for 2019.
At the start of last year, the central People’s Bank of China (PBoC) said that it was encouraging cross-border and overseas use of the RMB to settle accounts and boost investment. Chinese onshore corporates would be able to issue offshore RMB bonds and repatriate the proceeds onshore.
The PBoC added that it recognised Chinese banks had been looking to trade in offshore RMB and that there was a growing need for foreign-funded companies in China to be able to transfer investment revenue overseas.
In a bid to boost the real economy, the Chinese government has since been encouraging RMB inflow and justifiable outbound investment, meaning that real trades with supporting documents will generally be approved.
“There is still a lot of potential business opportunities under the capital account,” said the senior manager of a state-owned Chinese bank, quoted by Asia financial magazine The Asset. “Regulators will move in the same direction in terms of capital account liberalisation, but at their own pace.”
“The current account is fully opened, but a few types of activities under the capital account are still restricted.
However, the ability to utilise cross-border cash pooling does not extend to China’s property sector. In early 2018, a restriction imposed on the industry was temporarily relaxed, but regulators decided to make the easing short-lived. Those with cross-border cash pools are not permitted to sweep the cash while those without the structure are barred from setting up a new one.
While the adoption of internet banking has simplified the transaction process, cross-border transactions are still subject to regulatory approval. “Our clients in mainland China are able to send instructions via our corporate banking platform. But it does not mean that it can circumvent the FX control,” an executive at a Taiwanese bank told The Asset.
The magazine offers the following example of a typical cross-border transaction: A Vietnam subsidiary of a Chinese company sends a US dollar payment to China through its Vietnamese bank which deducts the amount from the client.
Once the trade documents are validated and Vietnam’s authorities approve the transaction, the funds will be transferred via Swift to the Chinese company’s bank in China. The Chinese receiving bank is required to submit documents to Chinese regulators post-transaction on behalf of its clients, depending on the type of corporation.