Renminbi Cross-border: Now a Compelling Opportunity

There are already 6281 Wholly Foreign Owned Entities in the Shanghai Free Trade Zone (FTZ) eligible to take advantage of Renminbi (RMB) cross-border pooling. That’s no coincidence, and reflects the opportunity for major capital efficiencies that have attracted leading multinational companies (MNCs) to the Shanghai FTZ. Now, in a further positive development for global liquidity management, the People’s Bank of China (PBOC) has announced that its Centralized RMB Cross-Border Cash Management scheme will be extended nationwide, making RMB cross-border pooling possible from anywhere in China. As Michael Nelson, head of Treasury Services Corporate Sales and head of Corporate Banking MNC, China at J.P. Morgan explains, the argument for corporates to act is now stronger than ever.

RMB Liquidity Management: Another Momentous Step

The rules permitting virtually unfettered bilateral movement of RMB cross-border from or to the Shanghai FTZ have been popular with some MNCs that have implemented liquidity schemes. However, for those corporates without an existing entity in the Shanghai FTZ to route RMB, the cost and effort of establishing one has been a consideration, particularly in view of the pending national rollout of RMB cross-border pooling which recently announced by the PBOC. Whilst some corporates have taken the decision to wait for these final details and the possible opportunity of using an existing entity elsewhere in China as a conduit for RMB cross-border liquidity management, that wait is now over with the PBOC’s publication of the new Yinfa 2014 [324] regulation, which details the formal nationwide rollout of “Centralized RMB Cross-Border Cash Management.”

With these new rules, in conjunction with the existing Shanghai FTZ rules, China’s flexibility is approaching those of Western Europe and the United States for cross-border liquidity management. There are still some restrictions, but many MNCs will find that the inclusion of RMB in their global liquidity structures is now readily achievable and extremely beneficial.

Shanghai FTZ: Boosting Working Capital and Balance Sheet

Even before the announcement of the details of the nationwide rollout, the cross-border RMB liquidity management opportunities were already considerable. In February 2014, the PBOC published rules for the Shanghai FTZ removing the need for explicit case-by-case permission. If a corporation could meet general eligibility criteria, it implicitly had permission to pool RMB cross-border. Limitations on this activity are not onerous, and include requirements such as the eligibility of only surplus (not borrowed) funds for inclusion, and the exclusion of overseas borrowing for investments in securities or real estate.

One company that was quick to appreciate the possibilities of the Shanghai FTZ rules was one of J.P. Morgan’s clients — a global leading agribusiness and food commodities company that buys, sells, stores and transports oilseeds and grains worldwide.

This commodities company operates soybean processing plants in the country through five legal entities and one branch office. The company was looking to utilize its funds in China more effectively, and partnered with J.P. Morgan to establish a two-way RMB-denominated cross-border sweeping structure in the Shanghai FTZ to move funds between its China headquarters and its Regional Treasury Center (RTC) in Singapore. The company uses the cross-border cash sweeping to make intercompany RMB loans from the Shanghai entity to the RTC in Singapore, and borrows from the RTC to the Shanghai entity.

Furthermore, the company’s FTZ entity also lends and borrows from other affiliates in China that are outside the Shanghai FTZ through an existing China cash pool, which integrates their domestic cash pool with its overseas liquidity structure. The facility for lending from the RMB cross-border account to the overseas subsidiary account, as well as for repayment from the overseas sub-account to the RMB cross-border lending account is fully automated, without the need for any supporting documents from the company. The RTC in Singapore operates a notional pool in both RMB and U.S. dollars (USD), so funding based upon RMB inflows can easily be supplied in USD to entities elsewhere and vice versa.

This has enabled the company to use capital far more efficiently, bring trapped cash from its Chinese entities offshore, and utilize offshore funding to support onshore working capital needs. Furthermore, the company has leveraged its cash in China to reduce debt at the group level at each quarter-end or year-end, thereby managing its corporate balance sheet more effectively.

“Once the PBOC announced the changes that would enable us to set up cross-border pooling and move our trapped cash out of China, we wanted to take full advantage of the new rules as fast as possible," says the China Treasury Manager at this commodities company. "The structure which J.P. Morgan set up has enabled us to use our funds more effectively, reduce our costs, and run our treasury operations in China far more efficiently.”

The Shanghai FTZ scheme as applied by this company mentioned as a case-in-point, has a number of other important advantages. Any inward movements of funds are treated from an accounting perspective as an intercompany loan, and as part of the sweeping activity, and are not subject to the borrowing gap requirements previously applicable. Similar benefits apply to outbound flows in that no quota applies.

New Rules, New Nationwide Opportunities

The existing Shanghai FTZ rules have since brought China significantly closer to regions such as the United States and Europe in terms of ease of cross-border liquidity management. The extension of the RMB cross-border liquidity management rules to nationwide, now further close remaining gaps.

The new rules largely permit MNCs to conduct RMB cross-border sweeping from anywhere in China, though there are some eligibility and operational criteria of which to be aware.

Day-to-day operations of RMB cross-border sweeping under the nationwide rules must comply with a number of requirements, which include:

While these requirements may preclude some MNCs from participating in the nationwide scheme, the limitations for many larger entities are not seen as major obstacles. For instance, one of the perennial issues for MNCs that established operations in China was that once they became profitable, they faced a challenge in repatriating retained earnings. Therefore, the inbound quota is likely to be seen as much less of an obstacle than the opportunity of no quota for outbound flows.

Best of Both Worlds

The announcement of the nationwide RMB cross-border liquidity management rules gives MNCs a substantially greater degree of strategic flexibility when it comes to their global liquidity management. Until now, the alternative (outside the Shanghai FTZ scheme) has been limited to bilateral onshore to offshore loans for fixed amounts and tenors, which also have to be registered with the PBOC on a case-by-case basis. By contrast, the Shanghai FTZ and new nationwide rules now make RMB cross-border liquidity solutions possible. These, as companies such as the American commodities company mentioned earlier have found, have the important advantage of requiring negligible treasury time or intervention to operate on a day-to-day basis. Fully automated integration with a global or regional cash pool platform becomes immediately achievable.


The recent PBOC announcement changes the game yet again for RMB liquidity management. Those corporations that were awaiting the publication of the rules can now act immediately to reap substantial benefits. Moving liquidity efficiently in and out of China on a capital account has now become almost straightforward. Nevertheless, the correct choice of a banking partner with capacity and global reach, is critical in developing the most appropriate solution with the least amount of cost as swiftly as possible.

1 Ernst & Young China (Shanghai) Pilot Free Trade Zone Publications Series Inaugural Issue (Page 2):$FILE/EY-FTZ-Interpretation-en.pdf

Learn More

For more information, please contact Michael Nelson, Managing Director, Head of Treasury Services Corporate Sales and Head of Corporate Banking MNC, China, J.P. Morgan at

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