Guangdong province aims to build an onshore center for cross-border renminbi settlement, leveraging on its proximity to Hong Kong and Macau, another significant step in China’s push for renminbi internationalization.
The plan was revealed on its website this week as part of proposals for establishing additional free trade zones (FTZs) in the mainland. China has set four pilot FTZs in Shanghai, Guangdong, Fujian and Tianjin. Guangdong FTZ is comprised of three areas, namely the Nansha new area in Guangzhou, Qianhai new area in Shenzhen and Hengqing new area in Zhuhai, covering a total of 116.2 square kilometres.
Guangdong, the largest province in China in terms of GDP in the past 26 years, vows to promote renminbi as the major currency for companies in the zone for cross-border trade, investment and settlement.
Corporates are allowed to conduct cross-border renminbi lending, and cross-border two-way renminbi cash pooling in the pilot FTZ within their parent groups.
Bank of China (Hong Kong) has offered the first 300 million yuan (US$48 million) cross-border renminbi loans to Guangzhou Port Co Ltd, which is registered in the Guangdong FTZ.
“BOC’s Guangdong Branch serves as the custodian bank of the loan, while BOCHK capitalises on its competitive edge in offshore renminbi business by providing the loan at a comparatively lower financing cost than that in the onshore market,” BOCHK says in a statement on July 13 2015.
The Guangdong FTZ also promotes funding in the capital market. Hong Kong and Macau enterprises that have direct investment in the FTZ are allowed to issue renminbi bonds in onshore capital market.
On the other hand, mainland companies registered in the Guangdong pilot FTZ are allowed to list renminbi-denominated stocks in Hong Kong. They will enjoy easier approval process in bond issuance in local or foreign currencies in offshore market as well.
Guangdong government also encourages securities, fund management, futures and insurance companies in the zone to conduct renminbi business in Hong Kong and Macau.
From the beginning of operations on April 21 this year to end of June, there were over 11,000 companies newly registered in the Guangdong FTZ, including 10,600 Chinese companies with total registered capital of 406.23 billion yuan and 464 foreign companies with registered capital of US$4.9 billion.
