Beijing: Chinese banks in the Shanghai Free Trade Zone (FTZ) have been allowed to conduct offshore business, a move further liberalising financial markets as part of new reforms initiated by the world's second largest economy to halt its slow down.
Chinese banks in the FTZ which is being set up on a experimental basis will be permitted to provide services to depositors who are residents in other countries.
Shanghai FTZ, a testing ground for financial reform, will also allow eligible foreign financial institutions to set up banks, and team up with qualified domestic banks in joint-ventures.
Some domestic banks, such as Bank of Shanghai, China Construction Bank, the Industrial and Commercial Bank of China and Shanghai Pudong Development Bank announced that they were approved to set up branch banks in the FTZ, state-run Xinhua news agency reported today.
Shanghai Pudong Development Bank sees the FTZ as a great opportunity to provide clients with services based on its offshore and onshore financial platforms.
The bank has been researching capital account convertibility and Renminbi (RMB) cross-border use, and will issue a comprehensive plan on financial services once FTZ policies are fully in place.
Trade and openness in the FTZ service sector need to be supported by major financial reforms such as full convertibility of the yuan and freer capital flows, said Lian Ping, chief economist at the Bank of Communications.
China Construction Bank will grant large credit extensions in the FTZ to support infrastructure construction, international commodity trading, service outsourcing, cross-border mergers, acquisitions and other major projects.
It will make the FTZ a platform for financial innovation on RMB capital account convertibility, commodity trading platforms and cross-border RMB businesses.
"The joy of the Shanghai FTZ is that it is an open platform where foreign and Chinese companies compete on a level-playing field," Shen Minggao, chief economist at Citibank said.
China aims to lift the zone up to international standards featuring convenient investment and trade, free exchange of currencies, efficient supervision and a sound legal environment after two to three years of tests, according to the detailed plan announced yesterday.
The plan also establishes a foreign exchange management mechanism adaptable to trade and investment reform in the zone.
The new plan is expected to attract more MNCs.
Shanghai was home to 432 MNCs by the end of August this year, with another 277 foreign investment companies and 361 research and development centres can come up in the future.
The Shanghai FTZ, a pet project of Premier Li Keqiang is expected to pose a stiff competition to international trade hub Hong Kong.
The new experimental FTZ is envisaged to test how it could boost FDI and reignite the slowing down of world's second largest economy.