Page 8 - THE SOUTH CHINA BUSINESS JOURNAL
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PTH
In July 2022, when the pilot program was different rules, and coordination between the two
expanded to more areas and companies, the is therefore difficult.
scope of the program itself was also broadened.
The expanded scope included allowing MNCs Meanwhile, enabling MNCs to purchase foreign
to handle domestic and foreign currency currencies more easily will significantly help to
centralized receipt and payment of their reduce the risks of exchange rate fluctuations,
overseas member companies in China. Under and provides “convenience for multinational
this policy, the host company is allowed to groups in managing the cross-border fund of
centrally collect and pay the funds related their member companies, significantly reducing
to trade transactions between the overseas exchange costs and effectively managing
member companies listed in the cash pool exchange risks.”
and overseas trading counterparts. These
transactions will take up some of the centralized Under the current rules, foreign currency
debt limit recorded in the cash pool and require purchases must be approved by SAFE, greatly
an international balance of payments reporting. slowing the process.
Finally, in May 2023, the program was further The pilot program is also beneficial to banks
upgraded to allow MNCs to determine the that are servicing the companies by “enhancing
collection ratio of foreign debt and overseas their overall capabilities in cross-border business
according to the macroprudential principle, thus services and risk management”, according
increasing the freedom of cross-border capital to the Beijing branch of SAFE. Meanwhile,
operations. However, this policy is currently only Standard Chartered said that the pilot “optimizes
being implemented in Beijing and Guangdong. the service delivery through improving work
efficiency and reducing operating cost”.
How will the program help
MNCs and banks? Finally, the pilot program also helps to advance
the internationalization of the RMB, a core goal of
The pilot program brings substantial the Chinese government. In the announcement
improvements to the efficiency of cross-border of the 2022 expansion of the pilot program, the
capital coordination and utilization for MNCs. It authorities stated that the program will facilitate
enables them to effectively manage funds in both MNCs to carry cross-border payments in RMB.
local and foreign currencies, resulting in reduced
currency exchange risks and financial costs. Beyond the current scope of the pilot program,
According to a statement from Standard the monetary authorities have stated that they
Chartered Bank made after the initial launch of will continue to optimize the program to facilitate
the pilot program, it “reduces manual processes cross-border utilization of mixed currency
and greatly improves the flow of cross-border funds. It is also possible that the authorities will
funds by integrating the process of RMB and lower the requirements in the future so that
foreign currency cash pooling.” Under current more companies can participate, as the current
rules, the RMB and foreign currency accounts bar means that the majority of companies are
must be managed separately and are subject to ineligible for the program.
5 AMCHAM SOUTH CHINA
In July 2022, when the pilot program was different rules, and coordination between the two
expanded to more areas and companies, the is therefore difficult.
scope of the program itself was also broadened.
The expanded scope included allowing MNCs Meanwhile, enabling MNCs to purchase foreign
to handle domestic and foreign currency currencies more easily will significantly help to
centralized receipt and payment of their reduce the risks of exchange rate fluctuations,
overseas member companies in China. Under and provides “convenience for multinational
this policy, the host company is allowed to groups in managing the cross-border fund of
centrally collect and pay the funds related their member companies, significantly reducing
to trade transactions between the overseas exchange costs and effectively managing
member companies listed in the cash pool exchange risks.”
and overseas trading counterparts. These
transactions will take up some of the centralized Under the current rules, foreign currency
debt limit recorded in the cash pool and require purchases must be approved by SAFE, greatly
an international balance of payments reporting. slowing the process.
Finally, in May 2023, the program was further The pilot program is also beneficial to banks
upgraded to allow MNCs to determine the that are servicing the companies by “enhancing
collection ratio of foreign debt and overseas their overall capabilities in cross-border business
according to the macroprudential principle, thus services and risk management”, according
increasing the freedom of cross-border capital to the Beijing branch of SAFE. Meanwhile,
operations. However, this policy is currently only Standard Chartered said that the pilot “optimizes
being implemented in Beijing and Guangdong. the service delivery through improving work
efficiency and reducing operating cost”.
How will the program help
MNCs and banks? Finally, the pilot program also helps to advance
the internationalization of the RMB, a core goal of
The pilot program brings substantial the Chinese government. In the announcement
improvements to the efficiency of cross-border of the 2022 expansion of the pilot program, the
capital coordination and utilization for MNCs. It authorities stated that the program will facilitate
enables them to effectively manage funds in both MNCs to carry cross-border payments in RMB.
local and foreign currencies, resulting in reduced
currency exchange risks and financial costs. Beyond the current scope of the pilot program,
According to a statement from Standard the monetary authorities have stated that they
Chartered Bank made after the initial launch of will continue to optimize the program to facilitate
the pilot program, it “reduces manual processes cross-border utilization of mixed currency
and greatly improves the flow of cross-border funds. It is also possible that the authorities will
funds by integrating the process of RMB and lower the requirements in the future so that
foreign currency cash pooling.” Under current more companies can participate, as the current
rules, the RMB and foreign currency accounts bar means that the majority of companies are
must be managed separately and are subject to ineligible for the program.
5 AMCHAM SOUTH CHINA
