Shell, Transsion lead 10 multinational companies picked to test China’s cross-border cash-pool plan as regulators fine-tune their policies on capital market liberalisation
- Royal Dutch Shell and Transsion Holdings are among 10 multinational companies in Beijing and Shenzhen picked for the cross-border cash pool
- The other companies with access to the pool include Cofco Group, China General Technology (Group) Holding, Sinochem and Avic
Royal Dutch Shell and the producer of Africa’s most popular phone brand Transsion Holdings are among 10 multinational companies that are taking part in a trial programme for freely converting the renminbi into foreign currencies, in the latest move by China’s currency regulator to liberalise the country’s capital account.
Besides Shell and Transsion, the transnational companies include the state-owned food processor and trader Cofco Group, the machinery manufacturer China General Technology (Group) Holding, the aircraft assembler Aviation Industry Corporation of China (AVIC) and the state-run chemicals trader Sinochem Corporation, according to Chinese authorities.
“It is a good move,” said Witman Hung Wai-man, principal liaison officer for Hong Kong at the Shenzhen Qianhai Authority, an agency charged with fostering cooperation, financial innovation and transborder investments between mainland China and Hong Kong. “The new measures will make it more flexible for companies to manage their cross border fund flow in trade finance and other transactions.”
State-owned military airspace contractor AVIC and other entities within the industry were sanctioned under the so-called “military end-users” list by the Trump administration in December, denying them access to US technology.
China first launched a pilot programme in 2012 to centralise the management of foreign currency funds, part of the government’s plan to make it easier for businesses with transborder operations to make use of foreign currency from the nation’s US$3.23 trillion pool. In 2015, the programme was rolled out nationwide, and expanded four years later in 2019 to cover foreign exchange as well as the renminbi.
The Chinese capital city and Shenzhen – the hometowns of many of China’s largest state-owned companies and technology with cross-border operations – were selected as the pilot cities for the foreign exchange management. Up to 118 multinational companies made US$100 billion in cross-border payments as of the end of 2020, according to Financial News, a Chinese-language news portal managed by the central bank.
The first 10 companies in the pilot were selected for their sizes, meeting the regulators’ requirement where “the total operating income from domestic branches in the previous year were at least 10 billion yuan (US$1.54 billion). A second condition was that the companies should hold no less than 7 billion yuan of currency balance in the country and abroad, while any overseas subsidiary should not have earned less than 2 billion yuan in operating income in the previous year, Financial News said, citing the head of a SAFE department.
“They can do the transfer in forms of a pool of funding across the border, instead of applying for approvals from the [currency regulators] for every transaction,” said Hung. Quotas will be enacted to conduct the cross-border fund flow in an orderly manner, he said.
At least one company made quick use of the programme. Sinochem this week borrowed US$10 million through the programme in its first foreign debt under the programme, where it directly transferred the foreign currency funds to the accounts of its subsidiaries, according to the municipal government of the Chinese capital city.
