Shanghai easing cross-border finance

The new action plan to further improve the facilitation of cross-border financial services provided in Shanghai will help facilitate Chinese companies' overseas outreach, which is in turn conducive to the maturity of the cross-border financial sector, said experts.

Made up of 18 detailed policies, the action plan aims to improve services concerning cross-border settlements, exchange rate hedging, financing, insurance and comprehensive financial services. Therefore, market entities can participate in international cooperation and competition more efficiently, said the action plan.

In particular, financial institutions' overseas branches will be better supported to provide financing for automakers' overseas sales distribution channels. Shanghai-based banks should provide better supply chain financial services to address the overseas forays made by companies based in the Yangtze River Delta region. Financial leasing companies, as well as their subsidiaries, will be better supported in providing outbound services so that Chinese companies can more seamlessly tap into overseas markets, according to the new action plan.

Meanwhile, the free trade account system should see its function and application scenarios expand. Banks will better develop deposit products for overseas institutions' free trade accounts. Interest rates for nonresident deposits under the free trade account system can refer to international practices and use market-based pricing, according to the newly released plan.

Banks setting up branches in the China (Shanghai) Pilot Free Trade Zone applauded these breakthroughs, saying that they will not only attract more foreign capital inflows, but also help to retain such capital onshore for longer periods.

As Chinese companies expand their overseas footprint, they have in the process created more complicated and diversified demand for cross-border financial services. The free trade account system can address such new demand by providing convenient cross-border settlements and financing, said Tu Qun, deputy head of China Construction Bank's Shanghai branch.

Different financial institutions should forge closer ties so that they can provide related services and prevent risks throughout companies' entire life cycles, Tu said.

Another major highlight in the new action plan is that banks providing foreign exchange settlements and capital payment services to cross-border e-commerce platforms — which can be authenticated by electronic transaction data — are now allowed to provide settlement services in line with international standards for these platforms via the free trade account.

As explained by experts from the Shanghai Municipal Financial Regulatory Bureau, this is like "an umbrella account" structure which includes a main bank account and various subaccounts. This structure is widely used in cross-border e-commerce. Overseas e-commerce platforms can first transfer money to the free trade account. The overseas payment company then distributes the funds to each domestic small merchant through the subaccount.

The huge amount of capital on cross-border e-commerce platforms, which have sprung up rapidly over the past few years, now points to new business opportunities for Chinese banks, they said.

China's Cross-border Interbank Payment System, a renminbi-based settlement system, should be upgraded and connected to more lenders to better serve outbound Chinese companies. In order to better facilitate the expansion of CIPS, blockchain technology should be better utilized to provide safe and highly efficient settlement and clearance services regarding yuan-denominated global trade, shipping, investment and financing, according to the newly released action plan.

As of end-2024, CIPS was utilized by 4,800 banks in 185 countries and regions, according to the People's Bank of China, the country's central bank. The annual trading value of CIPS approached 175.5 trillion yuan ($24 trillion) in 2024, up 42.6 percent from a year earlier.