The People’s Bank of China is now allowing companies based in Shanghai’s free-trade zone (FTZ) to borrow renminbi (RMB) from overseas.
Though this is an important step in the internationalisation of the RMB by the central bank, there are still substantial restrictions. The nearly 10,000 companies and non-banking financial institutions based in the FTX can only borrow up to 1.5 times their registered capital and can only use the money for operations and project construction within the zone or overseas.
Banks in the FTZ are now allowed to arrange cross-border RMB transactions for their clients independently, without needing approval from regulators.
China opened the free-trade zone in September 2013 as a testing ground for further reforms. However, the zone has received criticism due to regulators taking their time on financial liberalisations. Tu Guangshao, a vice-mayor of Shanghai noted that the city government and state financial regulators adopted a step-by-step approach towards financial regulation amid risk concerns, the South China Morning Post reported.
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