Bank on it

By Wang Xinyuan in Shanghai Source:Global Times Published: 2014-4-21 21:13:01

Signs for various banks and securities firms in Shanghai Pudong Lujiazui Finance and Trade Zone in September 2013 Photo: CFP





With the advance of financial reforms in the China (Shanghai) Pilot Free Trade Zone (FTZ), firms and banks registered in the zone are anticipating a steady rise in business opportunities.

One company that plans to capitalize on opportunities from the FTZ is Shanda Networking Co, a domestic Internet-based entertainment group, which plans to establish a joint venture bank with a foreign lender.

"We are in contact with potential partners," Zhuge Hui, a senior director of Shanda Networking, told the Global Times on Thursday.

Shanda International Trading Co, a subsidiary of Shanda Networking, is the first private Internet  to register in the zone. The firm had sales revenues of $300 million in 2013.

The Internet-based group expects to benefit from financial reforms in the pilot zone, such as free cross-border investment, Zhuge noted.

"We still hope for a more open business environment," he said.

The FTZ is pushing forward a free trade account system to facilitate financial investment, Zhu Min, deputy director of the Shanghai FTZ administrative committee, said at the Boao Forum for Asia on April 11.

Key programs include easing the cross-border use of the yuan, liberalizing interest rates for loans, and facilitating offshore financing and outbound investment.

Cross-border transactions

Cross-border yuan-denominated payment is the latest measure to promote convertibility of the yuan in the pilot zone.

Any third-party payment service providers will be eligible to apply for a cross-border yuan payment license if they are either incorporated in the FTZ or have a branch set up in the FTZ, according to rules released in February by the People's Bank of China (PBC), the central bank.

Another subsidiary of Shanda, Shanghai Shengfutong Electronic Payment Service (or Shengpay), is one of five payment service providers that received approval from the central bank in February for the pilot cross-border yuan transactions.

"We are optimistic about the cross-border yuan transactions," Hong Xiaoji, Shengpay's deputy general manager, told the Global Times on Friday, noting that she expects this new business to bring in deals worth billions of yuan for Shanda by the end of this year.

Shengpay has partnered with Industrial and Commercial Bank of China (ICBC) and Bank of East Asia. It signed its first service agreement for cross-border yuan transactions with South Korean game developer Actoz Soft in February.

The cross-border yuan payment service will make it more convenient for people to buy directly from overseas websites such as Amazon and eBay.

Currently, Chinese buyers have to use foreign currency-denominated credit cards on these sites and repay their banks in yuan, a process that can be affected by fluctuations in the exchange rate. With the new system, people will be able to pay in yuan instead of foreign currency.

Domestic business-to-consumer platforms can serve overseas customers by working with qualified third-party payment service providers.

ICBC, China Construction Bank, Bank of China and China Merchants Bank are among the first licensed commercial banks that will provide the settlement and clearing services for cross-border yuan payment.

China's cross-border e-commerce market has been growing strongly since 2008, with estimated sales revenues of 3.1 trillion yuan ($504 billion) in 2013 and an annual compound growth rate of 31.1 percent, according to iResearch Consulting Group. 

Supporting third-party payment services for cross-border yuan transactions will offer business opportunities for banks, Pan Yuehan, head of Bank of China Shanghai branch, was quoted as saying by the National Business Daily in February.

Cross-border transactions will increase demand for banks' products and services including wealth management products and bonds, Pan said.

The yuan overtook the euro in 2013 to become the second-most-used currency for transactions worldwide, according to the Society for Worldwide Interbank Financial Telecommunication.

Surging offshore loans

"Commercial banks have all been very proactive since the central bank released guidelines for financial reform in the Shanghai FTZ in December," Zhao Xiaolei, general manager of Shanghai Eastday E-commerce Co, told the Global Times on Tuesday.

Due to the availability of cross-border yuan financing in the zone since February, the e-commerce provider can now get a yuan-denominated loan from Bank of Communications' Hong Kong branch, and the interest payment on the offshore loan is 1 to 2 percentage points lower than for loans issued by mainland banks, Zhao said.

Foreign banks are also taking advantage of financial reforms in the FTZ. For instance, Citibank hopes to bring overseas financial products and services to China through the FTZ, Andrew Au, chairman and CEO of Citibank (China) Co, said at a media briefing in Shanghai on Thursday.

The US-based lender also aims to help Chinese clients expand globally through banking activities in the pilot zone, Au said.

Banking feast

In response to the shift toward companies using yuan for trade and payments, Citibank has offered yuan cross-border pooling and sweeping transactions for its Shanghai FTZ-based corporate clients since September 2013 when the FTZ was established.

The service enables Citibank's clients to automatically move yuan between their onshore and offshore intra-company accounts, without having to file supporting documents or apply for approval on a deal-by-deal basis.

"We hope that the FTZ financial reforms will accelerate, and commercial banks will follow the trend. The pace of China's financial reform, especially the opening of its capital account over the past two years, has been fast," Zhang Xiaomeng, head of Citibank's Shanghai FTZ sub-branch, told the Global Times on Friday.

These financial reform programs in the zone, including yuan cross-border settlement and cash management, gives companies more financial tools and choices, as well as improving funding and cash management efficiency, according to a note e-mailed to the Global Times on Monday from pharmaceutical firm Roche, which has a subsidiary in the zone.

Other foreign banks including Singapore-based DBS Bank and Germany-based Deutsche Bank also received approval to operate in the pilot zone and offer similar cross-border yuan services to FTZ-incorporated firms. 

DBS Bank is arranging an offshore yuan loan for a Chinese client and expects to complete the deal within a few days, the lender said in an e-mail to the Global Times on Friday.

With the liberalization of Chinese interest and exchange rates, corporate risks will rise too, and corporate clients will have increasing demand for asset management services to curb the risks, which will provide more opportunities for banks, the bank said.



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