现金管理

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Shanghai Free Trade Zone for Liquidity Management The Shanghai Free Trade Zone (SFTZ) has been a hot topic throughout 2014. What is all the excitement about? And is SFTZ really critical for China treasury?

SFTZ for Liquidity Management

SFTZ for Liquidity Management

by David Blair, Managing Director, Acarate Consulting

SFTZ has been a hot topic this year. What is all the excitement about? And is SFTZ really critical for China treasury? China’s central bank, the People’s Bank of China (PBoC) has opened up cross-border two-way sweeping nationwide, and schemes from PBoC for CNY and from the State Administration for Foreign Exchange (SAFE) or FCY cover all but the largest treasury needs.

The story so far

Prime Minister Li KeQiang recently expressed dissatisfaction at the progress of the Shanghai Free Trade Zone (SFTZ). SFTZ has broad scope well beyond corporate treasury, and most of that is beyond the scope of this article. SFTZ shot to prominence in treasury circles as the test bed for liquidity management solutions that effectively open China up for corporate cash management.

But first, let’s recap on the development in China. A decade ago, CNY was a controlled currency, and getting money in and out of China required approval and registration with the State Administration of Foreign Exchange (SAFE). Incoming capital had to be registered and handled in special equity bank accounts. Outgoing trade payments required taking a stack of paper to the local SAFE office to get their chop (red official stamp), and then taking it to a bank to initiate payment.

SAFE was the only regulator involved in cross-border transactions because CNY was not convertible. Treasurers knew that the People’s Bank of China (PBoC) set the interest rates that banks charged and paid to their subsidiaries but had few direct dealings with them.

In 2004, PBoC allowed Hong Kong banks to offer retail CNY services. This facilitated Hong Kong citizens bringing back CNY from their weekend shopping trips in Shenzhen to benefit from the carry trade. They had nowhere to deposit their CNY, so in 2007 PBoC allowed CNY bond issues in HK – the so-called ‘dim sum’ bonds. A few western MNCs have availed themselves of this opportunity.

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