Financing options and foreign currency settlement for FIEs in the FTZ

The Shanghai Branch of the State Administration of Foreign Exchange has issued a Circular with new measures to create a better environment for foreign-invested enterprises (FIEs) of the Shanghai Free Trade Zone (FTZ) to conduct cross-border trading and investments in China.

There is now the possibility for FIEs to convert their registered capital in foreign currency into RMB according to their operational needs. These funds should be placed into a special deposit account, and be used only for expenses related to the business of the company. But this capital shall not be used for securities investments, issuance of RMB entrusted loans, repaying inter-company loans, or acquisition of real-estate property not for use of the company.

As a reminder, enterprises outside Free Trade Zone can only apply to convert registered capital in foreign currency into RMB when necessitated by payments to vendors for goods or services. The Circular gives FIEs the option to convert foreign currency capital into RMB at will.

This Circular also eases the process for setting up foreign currency pools for FIEs in the FTZ to, allowing those with headquarters within the FTZ (which fulfill certain requirements) to apply for centralized operational management of foreign currency of its member companies. As a reminder, the current policy requires that cross-border receipt and payment are settled independently.

Last but not least, the Circular raises the upper limit of shareholder's equity used for lending to overseas from 30% to 50%. It allows FIEs to send their spare cash to their parent company or other companies of the same group; rather than deal with it in the form of dividend distribution.

All in all, the Circular provides more options for financing options and foreign currency settlement for FIEs in the FTZ.