OREANDA-NEWS.  January 16, 2014. The PBC has released Opinions on Financial Measures to Support the China (Shanghai) Pilot Free Trade Zone (the Opinions) in order to implement the decisions of the 3rd Plenary Session of the 18th CPC Central Committee and the strategic arrangements of the State Council on establishing China (Shanghai) Pilot Free Trade Zone (the FTZ), to promote development of real economy in the FTZ, to step up financial support for cross-border investment and trade activities, and to deepen financial sector reform.

Based on the Framework Plan for the FTZ, the Opinions follow the general principle of providing service to the real economy and facilitating cross-border investment and trade, aim to support opening-up, innovation and experiment in the FTZ, and endeavor to explore ways to facilitate exchange for investment and financing, to promote the cross-border use of RMB, to steadily advance market-based interest rate reform, and to deepen foreign exchange administration reform. These measures of financial sector support are launched to expand the room for real economy development and increase the competitiveness of the FTZ so that the FTZ can participate in international competition and cooperation at a higher level.

Specifically, the financial sector support measures will be rolled out in four major areas to support real economy development and facilitate cross-border investment and trade. The first area is to explore how to facilitate exchange for investment and financing, advance the progress towards capital account convertibility, expand the opening-up of the FTZ, and support Chinese enterprises to go global. The second area is to promote the cross-border use of RMB, make it more flexible for companies and individuals to use local currency in their cross-border transactions, and reduce exchange costs and exchange rate risks. The third area is to advance market-based interest rate reform, speed up the progress, and support development of the real economy. The fourth area is to deepen foreign exchange administration reform, further streamline administrative approval, and gradually build a system of foreign exchange administration compatible with the institutional arrangements in the FTZ.

In terms of the pace of implementation and risk prevention, the Opinions follow the principle of keeping risks within a controllable range, advancing the implementation gradually but steadily, and organizing the pilot program at opportune moments in an orderly way. The detailed reform measures in the Opinions will be implemented on an incremental basis when conditions have matured to secure the orderly progress of the pilot program.

Based on the principle of keeping risks within a controllable range and making steady progress, the PBC will formulate implementation details for the reform measures and organize the actual implementation. Moreover, the Opinions provide a series of risk control measures from a macro-prudential perspective to ensure risk management in the entire process. Based on the separate account management, enterprises will be able to open free trade accounts and the financial institutions will establish a separate accounting system for their outlets in the FTZ to satisfy the demands of clients in the FTZ with a wider range of cross-border activities. The PBC and Shanghai Municipal Government will strengthen monitoring and analysis, closely monitor the anomaly in cross-border capital flow, and regulate the institutions in the FTZ by dividing them into different categories. The PBC may strengthen regulation over short-term speculative fund flow based on assessment of the situation.

The above measures will be implemented in order to help establish a model for business innovation and management in supporting development of the real economy and facilitating trade and investment in the FTZ which can be copied and introduced in other regions, support the FTZ to become an “experimental field” that will promote reform and openness of the economy, lead the way in further reform, and provide services to the whole country.