The PRC centralizes RMB operations
Last year, the People’s Republic of China revised the policies already in place to further oil the wheels of cross-border operations for multinational enterprises active in the PRC.
In November 2014, the People’s Republic of China (PRC) issued the document “Yin Fa (2014) No. 324” (hereinafter called “Document No. 324“), deciding to start the centralized operation of cross-border renminbi funds and cross-border bilateral renminbi (RMB) capital pooling throughout the country.
Roughly one year later, in September 2015, the People’s Bank of China issued a more detailed document, “Yin Fa (2015) No. 279” (hereinafter “Document No. 279“), to help further facilitate the subsidiaries and groups of multinational enterprises engaging in cross-border bilateral renminbi capital pooling business.
Comparing the two documents issued in China on this topic, we can find that the access threshold as well as the maximum limit for such businesses have both been further relaxed. Document No. 279 lowers the income access threshold of Chinese domestic member enterprises from RMB 5 billion to 1 billion. With it, it subsequently allows more and more multinational enterprises to benefit from the policy of cross-border bilateral renminbi capital pooling, reducing the list of forbidden enterprises to those in the Key Regulatory List, raising the upper limit of net inflow amount and relaxing the limit of capital resource. With the development of RMB internationalization to finance RMB through affiliates of overseas companies, this may be a convenient course for foreign-invested enterprises in China which does not occupy any foreign debt quota.
However, at the same time it should not be forgotten that in the PRC we actually have three different kinds of cash pooling opportunities. Besides the China-wide policy of cross-border bilateral renminbi capital pooling, enterprises may also consider the “free trade zone” policy of renminbi capital pooling, which has an even lower access threshold, no quota limit, and does not require registration with the People’s Bank of China. In addition, in August 2015, the State Administration of Foreign Exchange issued the document “Hui Fa (2015) No. 36”, which relaxes the policy of centralized operation of foreign exchange funds by multinational corporations. Depending on the kind of business you plan to expand in the PRC as well as the products and services you and your subsidiaries and groups are trading in and selling, the choice should be made wisely as to which of these opportunities best fits your situation and organization.
The differences between No. 279 and No. 324 at one glance
| No. 279 document in 2015 | No. 324 document in 2014 | |
| ||
| Years operating | 1yr. | 3yrs. |
| Total amount of operating income of Chinese domestic member enterprises in the preceding year | RMB 1bn | RMB 5bn |
| Total amount of operating income of overseas member enterprises in the preceding year | RMB 200 m | RMB 1bn |
| Forbidden enterprises | Enterprises included in the list of special supervision (Key Regulatory List) | Local government financing platform, real estate industry, and enterprises included in the list of special supervision (Key Regulatory List) |
| Raising the upper limit of net inflow amount (Cross-border bilateral renminbi capital pooling shall be subject to administration on maximum amount. Maximum net inflow amount of cross-border renminbi funds = accrued owner’s equity of the capital pool * macro prudential policy index) | ||
| Macro prudential policy index | 0.5 | 0.1 |
| Relaxing the limit of capital resource | ||
| Limit of centralized cash flow | Not mentioned | Derived from the production and operation activities and from industrial investment activities |
| Overdraft | Daylight overdrafts and overnight overdrafts are allowed | Not mentioned |
| Increasing the number of settlement banks | ||
| Number of settlement banks | Enterprise may select 1 or up to 3 banks | Enterprise shall select 1 bank |
In the PRC we have three different kinds of cash pooling opportunities. The choice should be made wisely as to what best fits your situation and organization.
Author
Yi Wang, C.P.A.
yi.wang@ecovis.com
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