DALIAN CHINA  DALIAN CHINA
The New Deal of Foreign Exchange in Dalian Free Trade Zone Has Demonstration Effect on the Use of Cross-border Funds in Northeast China
2019-08-09

On August 8, Dalian Bonded Zone Hettel Resin Co., Ltd., a Japanese-funded enterprise, successfully settled the foreign exchange in Japanese yen in Dalian Free Trade Zone Sub-branch of Bank of China by means of a payment order. The process is much simpler than before. This is also the first single business since the release of the 2.0 version of the Detailed Rules for the Pilot Implementation of Foreign Exchange Management Reform in Dalian Free Trade Zone. It marks the successful landing of many businesses in the Detailed Rules for the Implementation of Foreign Exchange Management Reform in Dalian Free Trade Zone and will have a demonstration effect on the use of cross-border funds in the Northeast.

 

In order to strengthen the financial innovation of Dalian Free Trade Zone and improve trade and investment facilitation, recently, the Dalian Branch of the State Administration of Foreign Exchange promulgated the Detailed Rules for the Implementation of the Pilot Foreign Exchange Management Reform in the Dalian Section of the China (Liaoning) Pilot Free Trade Zone (Version 2.0). A number of foreign exchange control policies and measures have been implemented on a pilot basis in Dalian, mainly involving current account, capital account and foreign exchange market. This move further strengthens the decentralization of government, reduces the exchange rate risk of cross-border financing, and provides more investment channels for foreign-funded enterprises. At the same time, it also has a positive impact and impetus in optimizing the centralized operation of cross-border funds, lowering the threshold for enterprises in the region to set up cross-border fund pools, and better serving the development of the headquarters economy and the clearing center.

 

Compared with Version 1.0, the main contents of this revision include: we allow the pilot implementation of foreign exchange payment facilitation in capital projects in the region; we allow the enterprises in the area to go through the formalities of registration, alteration and cancellation of basic domestic direct investment information in any bank under the jurisdiction of Dalian Branch Bureau; we allow the non-investment foreign-invested enterprises in the zone to use the foreign exchange income of the capital account or the RMB funds obtained from the settlement of foreign exchange for the domestic equity investment according to the actual investment scale on the premise of truthfulness and compliance; we allow the enterprises in the region that have decided to use the “bet spread” mode to borrow foreign debts to use the macro-prudential management mode of cross-border financing, and once the adjustment is made, the borrowing shall not be changed; we should relax the requirement that the contract currency, withdrawal currency and repayment currency of cross-border financing of enterprises must be consistent, and allow enterprises in the region to withdraw and repay money in different currencies from the contract currency, but maintain the same withdrawal currency and repayment currency; we allow any bank under the jurisdiction of Dalian Branch Bureau to directly handle the cancellation registration of foreign debts of the enterprises in the area, and cancel the time limit for the enterprises to handle the business; enterprises in the region carry out centralized management of cross-border funds of transnational corporations, and their balance of payments in local and foreign currencies was adjusted from more than 100 million US dollars to more than 50 million US dollars last year.

  

The implementation of the Rules for Implementation (version 2.0) has had a positive impact in a number of ways:

 

First, the use of foreign exchange by enterprises in the region has become more convenient. Before the new rules, when the income of the capital account of the enterprises in the area is paid and used, we need to provide the bank with proof materials of payment such as contracts and invoices one by one, which takes time and effort. After the promulgation of the new regulations, qualified enterprises in the Dalian area can handle the settlement and payment of foreign exchange income of capital account efficiently and conveniently without providing such materials as contracts and invoices one by one, so as to improve the efficiency of using the funds of the enterprise. Second, there are fewer “errands” for enterprises in the region. As clearly stated in the Rules for Implementation (version 2.0), enterprises in the Pilot Free Trade Zone are allowed to register, change and cancel the basic information of domestic direct investment in any bank under the jurisdiction of Dalian, allowed to directly handle the cancellation and registration of foreign debts by any bank under the jurisdiction of Dalian, and cancel the time limit for the enterprise to handle the business. Before the promulgation of the new regulations, enterprises must go through the registration, alteration, cancellation of basic information of direct investment in China and cancellation of foreign debts at the foreign exchange bureaus where the enterprises are located, and there is still a time limit for the cancellation of foreign debts, which brings some troubles to the enterprises “registered within the region and operated outside the region”. Third, there are more channels for “imported” enterprises to invest, which has played the role of “loosening the binding”, allowing non-investment foreign-invested enterprises in the Pilot Free Trade Zone, under the premise of truthfulness and compliance, to use the foreign exchange income of capital account or RMB funds obtained from settlement of foreign exchange for domestic equity investment according to the actual investment scale. Fourth, the exchange rate risk of cross-border financing is much lower. Before the new rules were introduced, if a company signed up with a bank to raise $100 million, both withdrawals and repayments due would have to be made in US dollars. “If the main business of the company is domestically and the US dollar and the RMB swap frequently, there is a risk of exchange rate risk, virtually increasing the cost of financing the company.” After the promulgation of the new regulations, no matter what kind of currency enterprises sign, they can choose to draw money in RMB and repay it in RMB, which can effectively avoid exchange rate risks, reduce financing costs and facilitate the operation of enterprises.

 

In addition, on the basis of lowering the entry threshold for FTZ enterprises to carry out cross-border fund centralized operation and management business, the new regulations have expanded the policy capacity of cross-border fund centralized operation and management business, added new reform dividends, further facilitated the global operation of transnational corporations’ funds, and supported the development of headquarters economy.