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Notice of the Shanghai Headquarters of the People’s Bank of China on Supporting the Expansion of the Cross-border Use of RMB in China (Shanghai) Pilot Free Trade Zone

The Shanghai branches of China Development Bank, all policy banks, state-owned commercial banks, joint-stock commercial banks, and Postal Savings Bank of China; Bank of Communications, Shanghai Pudong Development Bank, Bank of Shanghai and Shanghai Rural Commercial Bank; the Shanghai branches of other urban commercial banks; all foreign-funded banks in Shanghai; and all non-bank financial institutions in Shanghai:

According to the Opinions of the China Insurance Regulatory Commission on Providing Financial Support for the Construction of China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as the “Opinions”) and other relevant provisions, as approved by the headquarters of the People’s Bank of China in an official reply, matters regarding supporting the expansion of the cross-border use of RMB in China (Shanghai) Pilot Free Trade Zone (SHFTZ) are notified as follows:

I. All policies and measures issued by the state to encourage and support the expansion of the cross-border use of RMB shall apply to SHFTZ.

II. Cross-border RMB settlement under current accounts and under direct investment in SHFTZ

Banking financial institutions in Shanghai may, under the three principles of “knowing your clients”, “knowing your business” and “due diligence”, directly conduct cross-border RMB settlement under current accounts and under direct investment on the basis of the receiving and payment orders submitted by institutions (excluding those in the watch list for RMB settlement in export trade in goods) and individuals in SHFTZ.

1. When conducting settlement under direct investment for the aforesaid parties, banks shall, according to the negative list management requirements for investment in SHFTZ, require them to produce approval documents issued by competent authorities if the settlement business is subject to negative list management.

2. The Shanghai Headquarters of the People’s Bank of China and the SHFTZ Management Committee shall establish a direct investment information sharing system through the comprehensive information management system of SHFTZ and provide the relevant information services for commercial banks.

III. Bank settlement accounts of individuals in SHFTZ

To facilitate individuals in conducing cross-border RMB settlement under current accounts, individuals employed or practicing in SHFTZ may, according to the Administrative Measures for RMB Bank Settlement Accounts (Order No. 5 [2003] of the People’s Bank of China) and other relevant rules governing bank settlement accounts, open individual bank settlement accounts or institutional bank settlement accounts for individual industrial and commercial households and use them for cross-border RMB receipt and payment. In particular, when opening a RMB bank settlement account, an overseas individual shall also produce a residence permit valid for one year or more as issued by the exit-entry administrative division of the public security organ.

IV. Overseas RMB borrowing in SHFTZ

Overseas RMB funds (excluding trade credit, and operating financing inside groups) borrowed by financial institutions and enterprises in SHFTZ shall be used in areas subject to the macro control of the state. Such funds may not be invested in negotiable securities (including wealth management products and other asset management products) or derivative products for the time being, and may not be used for entrusted loans.

1. The upper limit of the size (balance) of overseas RMB funds borrowed by enterprises in SHFTZ is: paid-up capital × 1 × macro-prudential policy parameter, where: paid-up capital shall be that indicated in the latest capital verification report, and the term of loan shall be one year or more. Borrowers in SHFTZ may, according to the Administrative Measures for RMB Bank Settlement Accounts, open special deposit accounts at Shanghai-located banks to exclusively deposit RMB funds borrowed outside China. Such funds may only be used inside SHFTZ or outside China for production and operation inside SHFTZ, project construction inside SHFTZ and project construction outside China.

Foreign-funded enterprises established in SHFTZ before SHFTZ is launched may decide by their own whether to adopt the “difference between investment and registered investment” mode or to observe the rules as set forth by this Notice when borrowing RMB funds outside China, and file their decisions with the Shanghai Headquarters of the People’s Bank of China through banks with which their accounts are opened. Once decided, their decisions may not be altered.

1. The upper limit of the size (balance) of overseas RMB funds borrowed by non-bank financial institutions in SHFTZ is: paid-up capital × 1.5 × macro-prudential policy parameter. The term of loan shall be one year or more. Borrowed funds may be transferred back and deposited into their special deposit accounts opened with Shanghai-based banks, and may only be used inside SHFTZ or outside China for production and operation inside SHFTZ, project construction inside SHFTZ and project construction outside China.

2. On funds deposited in the special deposit accounts opened by enterprises and non-bank financial institutions in SHFTZ to deposit RMB funds borrowed outside China, interest shall be accrued at the rate for demand deposit.

3. The RMB funds borrowed outside China by banks in SHFTZ must be subject to the separate accounting of SHFTZ, be used inside SHFTZ, and serve the construction of real economy.

4. The macro-prudential policy parameter as mentioned in the above formulas shall be determined by the Shanghai Headquarters of the People’s Bank of China, and may be adjusted in light of the need for nationwide credit control.

V. Cross-border bilateral RMB capital pooling in SHFTZ

1. Enterprises in SHFTZ may, in light of their own needs for operation and management, engage in cross-border bilateral RMB capital pooling inside groups. The term “group” means a transnational group company mainly linked by means of capital and composed of the parent company, subsidiary companies, companies in which it holds a stake and other members with investment relationships, including enterprises (including finance companies) in SHFTZ. The term “cross-border bilateral RMB capital pooling” means the bilateral cash concentration activities between a group’s member enterprises inside and outside China, which is an operating financing activity inside an enterprise group.

2. To engage in cross-border bilateral RMB capital pooling, the headquarters of a group must designate a member enterprise (including a finance company) registered, formed and actually engaged in business operation or investment in SHFTZ and select a Shanghai-based bank to open a special RMB deposit account to be exclusively used for cross-border bilateral RMB capital pooling inside the group. The said account may not be used for other funds. All parties inside and outside China that participate in capital pool operations shall enter into agreements to specify their respective responsibilities and obligations for anti-money laundering, anti-terrorist financing and anti-tax evasion.

3. The flow of cash from parties whose cash is gathered to the party gathering cash is called cash concentration, while the flow of cash in the opposite direction is called cash disbursement. RMB funds subject to cash concentration and disbursement shall be cash flows arising from operating activities and industrial investment activities. Those arising from financing activities may not be concentrated.

VI. Centralized cross-border RMB receipts and payments under current accounts in SHFTZ

1. Enterprises in SHFTZ may, in light of their own needs for operation and management, engage in centralized cross-border RMB receipts and payments under current accounts for related enterprises inside and outside China. Related enterprises inside and outside China include member companies inside a group which are mainly linked by means of capital and have investments in each other, as well as enterprises outside the group which have supply chain relationships and frequent trade contacts with enterprises inside the group.

2. The headquarters of an enterprise group must designate a member enterprise (including a finance company) registered, formed and actually engaged in business operation or investment in SHFTZ and select a Shanghai-based bank to open a special RMB deposit account to be exclusively used for centralized receipts and payments under current accounts for its related enterprises inside and outside China.

3. Enterprises in SHFTZ shall enter into centralized receipt and payment agreements with parties with which they conduct centralized receipt and payment business under current accounts to specify their respective responsibilities for the veracity of transactions.

VII. Cross-border e-commerce RMB settlement

 1. We encourage Shanghai-based banks to directly provide cross-border RMB settlement services based on real cross-border e-commerce transactions for e-commerce business operators registered in SHFTZ.

2. We support Shanghai-based banks in cooperating with payment institutions (and the branch offices thereof) in SHFTZ which have legally obtained the license for “internet payment” to provide cross-border RMB settlement services based on real cross-border e-commerce transactions (including individuals and cross-border e-commerce export business operators).

3. Banks shall enter into cross-border e-commerce RMB settlement agreements with payment institutions and file them with the Shanghai Headquarters of the People’s Bank of China. Banks shall, according to the relevant rules of the People’s Bank of China, examine the veracity and compliance of cross-border e-commerce RMB settlement businesses handled through payment institutions. The cross-border RMB settlement businesses submitted by payment institutions to banks shall be based on real cross-border e-commerce transactions, and comply with the relevant laws and regulations of the state. Payment institutions shall perform duties for anti-money laundering and anti-terrorist financing examination, retain the relevant transaction records, and cooperate with the inspections of the relevant state authorities.

4. Payment institutions shall abide by the Administrative Measures for Payment Services Provided by Non-financial Institutions (Order No. 2 [2010] of the People’s Bank of China), the Measures for the Custody of Clients’ Reserves of Payment Institutions (Announcement No. 6 [2013] of the People’s Bank of China) and other relevant provisions.

VIII. Cross-border RMB trading services

1. China Foreign Exchange Trading System & National Inter-bank Funding Center will provide financial asset trading services priced and settled in RMB in SHFTZ for the SHFTZ market and the international market to support the expansion of the cross-border use of RMB.

2. Shanghai Gold Exchange will provide precious metal trading, delivery and settlement services priced and settled in RMB in SHFTZ for the SHFTZ market and the international market to increase the use of RMB in the international precious metal market.

IX. Information reporting

Information about all cross-border RMB businesses and all receipts and payments shall be filed with the cross-border RMB receipt and payment information management system with timeliness, accuracy and integrity, and balance of payments statistics shall be declared accordingly.

X. Anti-money laundering, anti-terrorist financing and anti-tax evasion

When providing cross-border RMB services for financial institutions and enterprises in SHFTZ, banks shall expressly list in the service agreement such clauses as that both parties shall fulfill their anti-money laundering, anti-terrorist financing and anti-tax evasion obligations and responsibilities according to the relevant state provisions, retain the relevant transaction records and vouchers, ensure that the trading process is reproducible, and cooperate with the inspection of the relevant departments.

 

Shanghai Headquarters, People’s Bank of China

 

February 20, 2014