LEHMAN, Lee & Xu China Law Newsletter

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Mr. Edward Lehman, Attorney admitted in Illinoise

The China Law Newsletter keeps you up to date on recent developments in China Law and Legal Practice

Surprising Changes to China Cross Border Finance

22^nd January 2016 is a red-lettered day in the history of cross border financing in China’s four free trade zones. The Chinese central bank issued the Prudent Macro Management of Cross-border Financing (“PBOC circular”). This envisages a unified cross border financing management regime in China’s four free trade zones namely, Shanghai, Guangdong, Tianjin, and Fujian.

The Shanghai Free Trade Zone was already following the rules laid down in this circular. The other three free trade zones operated under principles and methods. This PBOC circular is an attempt at unifying all the four trade zones for establishing a comprehensive macro monitoring system. This circular gives authorities the tools to smooth boom-bust cycles and control systemic risks arising from cross border financing. This is hoped to make the financial system stronger. There is an anticipation of extension of these principles on a nation-wide basis, but the time-frame for such a change remains in doubt.

Many market participants observe the PBOC and SAFE measures at controlling capital outflow. This circular signals a slight relaxation of the in-flow of capital while attempting to tightly control the outflow.

The new regulations grant more autonomy to the pilot companies and financial institutions and impose fewer regulations on raising offshore debt financing. Companies have the freedom to choose their own desirable interest rate for both off shore as well as on shore financing.

As a final point, the circular successfully addresses confusion regarding management of cross border capital flows by providing a unified cross border financing management system for both RMB and FX denominated financing.

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