Shanghai promotes innovative financial services

The recently passed provisions to promote the development of free trade (FT) accounts at Shanghai's Pudong New Area not only address the rising demand for innovative financial services, but also serve as another major attempt regarding the country's two-way opening-up, said experts.

As China's first local regulation specially promulgated for FT account businesses, the new provisions were passed on March 27, two months after it started to solicit public opinion, and will take effect on May 1.

Touching upon multinational companies' capital pool business, loans provided for overseas entities' mergers and even retail businesses under the FT account, the new provisions have demonstrated to both Chinese and foreign companies the direction of China's future financial opening-up, said Cao Xiao, head of School of Finance at Shanghai University of Finance and Economics.

As explained by Lu Hua, professor from the School of Economics at Fudan University, innovative supply chain finance services are now in high demand. This is especially true among biopharmaceutical companies and cross-border e-commerce platforms, as they need resources from both home and abroad. The FT account can address such demand by exploring more application scenarios, she said.

The FT account mechanism was first experimented in Shanghai in 2014. As of end 2024, about 170,000 such accounts had been opened in the city. Over the past decade, the average annual growth rate of cross-border receipts and payments in domestic and foreign currencies made via the accounts exceeded 30 percent, while that for cross-border receipts and payments handled by non-resident enterprises approached 40 percent.

One major highlight of the new provisions, according to Lu, is that banks are allowed to provide cross-border financial services via the FT account for qualified overseas individuals conducting domestic direct investment in the high-tech industries and strategic emerging industries.

Banks can also provide transfers freely to non-resident accounts for overseas individuals who have opened FT accounts. Other settlement services aiming to facilitate the work and life for those living in the China (Shanghai) Pilot Free Trade Zone and holding FT accounts will also be provided, according to the provisions.

This progress has addressed the rising number of overseas talent entering China, said Lu. With the wider proliferation of the FT account, more convenient settlement measures may be introduced regarding overseas users' medical, travel or consumption payments when using this account, she added.

Apart from high accessibility, the FT account can attract more users by introducing favorable foreign exchange and tax policies, she suggested.

Banks and financial institutions are allowed to provide cross-border capital and asset management for multinational companies via the FT account, comprising another major highlight of the new provisions, according to Cao.

Integrated domestic and foreign currency services will be available from the FT account. When banks issue non-resident merger and acquisition loans to FT accounts through branches in the Lin-gang Special Area of the Shanghai FTZ, restrictions regarding loan ratios and repayment periods will be relaxed to some extent.

Qualified enterprises engaged in bulk commodity production or cross-border trade are allowed for cross-border hedging under the FT accounts, but such services should be entrusted to domestic futures operating institutions approved by the top financial regulatory departments. These institutions should have obtained overseas futures brokerage qualifications, according to the new provisions.

These measures indicate that financial institutions are given more room to come up with innovative services catering to companies' specific demand, said Cao.

Ma Chenguang, senior partner of Co-effort Law Firm LLP in Shanghai, explained that the implementation of the new provisions requires coordination from various municipal and national departments. Therefore, the provisions should be better connected to the international practices and China's national-level financial regulations. In this way, the FT account can explore the application scenarios, which is conducive to the renminbi's higher influence in the international market, she said.