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Treasury & Capital Markets
China takes cross-border RMB sweeping nationwide
A pilot programme that allows corporates in China to link their onshore and offshore renminbi cash pools has been expanded nationwide on November 6. Two-way cross-border renminbi cash sweeping had only been available to corporates with
Christoph Kober 11 Nov 2014
A pilot programme that allows corporates in China to link their onshore and offshore renminbi cash pools has been expanded nationwide on November 6.
 
Two-way cross-border renminbi cash sweeping had only been available to corporates with an entity in the Shanghai (Pilot) Free Trade Zone that acted as the pool header.  A number of multinational corporations – among them pharmaceutical company Roche and industrial goods manufacturer Dover – took advantage of the pilot programme that was launched at the beginning of the year.
 
Restrictions continued to apply, however, in regards to transactions between entities in the pilot zone and those elsewhere in China.  In June, an announcement by the country’s central bank, the People’s Bank of China, said that corporates will be able to conduct cross-border renminbi sweeping from anywhere in China but did not provide an effective date.
 
"The Shanghai (Pilot) FTZ programme was pathbreaking but there was always a sense that a broader scheme would follow," relates Sridhar Kanthadai, regional head, transaction banking, Greater China and Northeast Asia at Standard Chartered.
 
"A number of our corporate clients expressed interest in the pilot scheme but did not want to open entities in the FTZ just for the sake of connecting their domestic Chinese cash pool with their global treasury operations.”
 
Standard Chartered on November 7 announced it had implemented renminbi-denominated cross-border sweeping for its client Xiamen Justsun Group, immediately following the central bank’s circular announcing the expansion. 
 
Kanthadai notes that the new nationwide scheme applies stricter eligibility criteria compared to the Shanghai pilot.  Annual sales turnover of all onshore and offshore participating entities in the cash pool must exceed 5 billion renminbi (US$817.18 million) and 1 billion renminbi, respectively.  Both onshore and offshore participating entities must be in operation for more than three years and, similar to the Shanghai pilot, proceeds cannot be used for investment in securities.
 
“The scheme is not designed to be a capital account relaxation,” explains Kanthadai.  “There are stricter vetting qualifications for corporates to be eligible. We feel the PBOC is looking for quality to start off with.”
 
While the scheme allows for true two-way sweeping, inflow of funds into China are limited to ten percent of the aggregate value of all onshore pool participants’ shareholder’s equity.  Outflows are not subject to a quota.
 
A company can now choose an entity to open special renminbi accounts with different banks in the place where it is registered so as to conduct centralized cross-border renminbi settlement under current account items. Netting is allowed.
 

Kanthadai expects strong take up of the scheme within the coming months.  “The new scheme coupled with the growing number of offshore renminbi centres means more corporates will take the leap to move to renminbi trade settlement.  For many of the large MNCs, China accounts for 10%-30% of group sales volumes so they are naturally interested to integrate China with their global treasury.” 

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