With the renminbi stabilizing of late partly due to easing Sino-US trade tensions, China has slightly relaxed capital and FX controls in 2019.
In early 2018, People’s Bank of China issued a regulation to encourage cross-border renminbi business. This regulation allows Chinese onshore corporates to issue offshore renminbi bonds and repatriate the proceeds onshore.
In a bid to boost the real economy, the Chinese government has been encouraging renminbi inflow and justifiable outbound investment. This means that real trades with supporting documents will be approved in general.
“There is still a lot of potential business opportunities under the capital account,” says a senior manager in a state-owned Chinese bank in an interview with The Asset. “Regulators will move in the same direction in terms of capital account liberalization, but at their own pace.”
“The current account is fully opened, but a few types of activities under the capital account are still restricted,” says the manager.
The property sector is one industry that is unable to utilize cross-border cash pooling. In early 2018, the restriction on cross-border cash pooling was relaxed for a few months but regulators soon resumed the ban. Those with cross-border cash pools are forbidden to sweep the cash while those without the structure are not allowed to set up a new one.
While the adoption of internet banking has simplified the transaction process, cross-border transactions are still subject to regulators’ 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,” says an executive at a Taiwanese bank.
A typical cross-border transaction works like this. 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 valid and the Vietnam authorities approve the transaction, the funds will be transferred through 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.
