• Document Number：No. 8 [2015] of the Shanghai Headquarters of the People’s Bank of China
• Area of Law： Leasing China (Shanghai) Pilot Free Trade Zone
• Level of Authority： Local Regulatory Documents
• Date issued：02-12-2015
• Effective Date：02-12-2015
• Status： Effective
• Issuing Authority： People's Bank of China, Shanghai Head Office

Notice of the Shanghai Headquarters of the People's Bank of China on Issuing the Detailed Implementation Rules for the Macroprudential Regulation of Overseas Financing and Cross-border Capital Flows in the Separate Accounting of China (Shanghai) Pilot Free Trade Zone (for Trial Implementation)
(No. 8 [2015] of the Shanghai Headquarters of the People's Bank of China)
The Shanghai and SHFTZ branches of the China Development Bank, all policy banks, state-owned commercial banks and joint-stock commercial banks, and Postal Savings Bank of China; Bank of Communications, Shanghai Pudong Development Bank, Bank of Shanghai, and Shanghai Rural Commercial Bank; the Shanghai branches of other urban commercial banks; all foreign-funded banks in Shanghai; and all non-bank financial institutions in Shanghai: ?
In accordance with the Opinions of the People's Bank of China on Providing Financial Support for the Building of China (Shanghai) Pilot Free Trade Zone (No. 244 [2013], PBC), upon the approval of the People's Bank of China, the Detailed Implementation Rules for the Macroprudential Regulation of Overseas Financing and Cross-border Capital Flows in the Separate Accounting of China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) are hereby issued to you. The document of the Shanghai Headquarters of the People's Bank of China shall be implemented in a steady manner according to the unified arrangements of the Shanghai Headquarters of the People's Bank of China (including the Shanghai Branch of the People's Bank of China and the Shanghai Branch of the State Administration of Foreign Exchange).
Annex: Detailed Implementation Rules for the Macroprudential Regulation of Overseas Financing and Cross-border Capital Flows in the Separate Accounting of China (Shanghai) Pilot Free Trade Zone (for Trial Implementation)
Shanghai Headquarters of the People's Bank of China
February 12, 2015
Annex:
Detailed Implementation Rules for the Macroprudential Regulation of Overseas Financing and Cross-border Capital Flows in the Separate Accounting of China (Shanghai) Pilot Free Trade Zone (for Trial Implementation)
Chapter I General Provisions
Article 1 To further promote trade and investment facilitation in China (Shanghai) Pilot Free Trade Zone (“SHFTZ”), improve the ability to provide financial services for the cross-border development of the real economy in SHFTZ, and prevent overseas financing risk in SHFTZ, these Rules are developed in accordance with the Opinions of the People's Bank of China on Providing Financial Support for the Building of China (Shanghai) Pilot Free Trade Zone (No. 244 [2013], PBC) and other relevant provisions.
Article 2 For the purpose of these Rules, the term “overseas financing in the separate accounting of SHFTZ” means the overseas financing activities of financial institutions in Shanghai through the separate accounting units of SHFTZ and the overseas financing activities of enterprises and non-bank financial institutions in SHFTZ through free trade accounts, hereinafter referred to as “overseas financing under separate accounting.”
Enterprises and non-bank financial institutions in SHFTZ shall have the option to select either of the existing external debt and offshore loan management model and the new macroprudential management model as mentioned in these Rules for their use and go through the recordation procedure with the Shanghai Headquarters of the People's Bank of China through their settlement banks. In principle, the management model shall not be changed once determined. If there is a just cause to change it, an application shall be submitted to the Shanghai Headquarters of the People's Bank of China (“PBC”) through the settlement bank. Only one change is permitted, and the outstanding balance of external debts or offshore RMB loans under the old management model shall be recorded under the new management model.
For the purpose of these Rules, the term “financial institutions” means the various incorporated financial institutions formed in Shanghai upon the approval of the PBC, the China Banking Regulatory Commission (“CBRC”), the China Securities Regulatory Commission (“CSRC”), or the China Insurance Regulatory Commission (“CIRC”) and the branch offices formed in Shanghai by national financial institutions, which have established the internal management rules for separate accounting in SHFTZ and connected to relevant systems of the Shanghai Headquarters of the PBC (including systems of the SAFE) in accordance with the requirements of the Detailed Implementation Rules for Separate Accounting in China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) and the Detailed Rules for the Prudential Management of Risks in Separate Accounting in China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) as issued by the Shanghai Headquarters of the People's Bank of China.
Article 3 The Shanghai Headquarters of the PBC (including the Shanghai Branch of the PBC and the Shanghai Branch of the SAFE, hereinafter the same) shall be responsible for work related to the macroprudential management of overseas financing and cross-border capital flows in separate accounting, and shall establish coordinated and cooperative mechanisms with other financial regulatory authorities.
Chapter II Management Rules for Overseas Financing in Separate Accounting
Article 4 Enterprises and non-bank financial institutions in SHFTZ and financial institutions that provide separate accounting services for SHFTZ may raise funds in China (including SHFTZ) or outside China, provided that they shall follow the principle of keeping risks under control. In particular, overseas financing activities shall be regulated through the leverage ratio for overseas financing, risk conversion factors, and macroprudential adjustment parameters.
The Shanghai Headquarters of the PBC may adjust the leverage ratio for overseas financing, risk conversion factors, and macroprudential adjustment parameters in view of the cross-border and cross-regional capital flows in SHFTZ and the credit supply and demand in SHFTZ and China, and take temporary emergency measures such as controlling the total quota of overseas financing under separate accounting if it is necessary for maintaining the financial stability of the state.
Article 5 The total of RMB and foreign currency funds raised from overseas areas by enterprises and financial institutions in SHFTZ through separate accounting units of SHFTZ shall be calculated by balance (the outstanding balance of withdrawn funds, hereinafter the same) on a consolidated basis, and the calculation formula is as follows:
overseas financing under separate accounting = ∑balance of offshore loans × term risk conversion factor × currency risk conversion factor × category risk conversion factor
By term, offshore loans may be divided into mid- and long-term loans and short-term loans.
Mid- and long-term loans are offshore loans with a term of more than one year as agreed upon by both parties, and short-term loans are loans with a term of not more than one year as agreed upon by both parties. The term risk conversion factor is 1 for mid- and long-term loans, and 1.5 for short-term loans. Where prepayments for mid- or long-term loans are made cumulatively for more than three times in a year, all unpaid loans and new loans shall be regarded as short-term loans.
By currency, offshore loans may be divided into RMB loans and foreign currency loans.
For offshore loans priced and settled in RMB, the currency risk conversion factor shall be 1; and for offshore loans priced and settled in foreign currencies, the currency risk conversion factor shall be 1.5.
Based on the balance sheet, overseas financing may be divided into on-balance-sheet financing and off-balance-sheet financing. The risk conversion factor for on-balance-sheet financing shall be 1, and that for off-balance-sheet financing (contingent liabilities) shall be 0.2 or 0.5.
Article 6 Calculation rules for overseas financing under separate accounting
1. Types of transactions not recorded in overseas financing under separate accounting
(1) Absorbed deposits. The overseas RMB and foreign currency deposits absorbed by a financial institution based on its free trade account services shall not be recorded in its overseas financing under separate accounting.
When a separate accounting unit deposits the foreign currency deposits absorbed by it in a domestic institution (including its superior corporate body), such deposits shall be recorded in the balance of foreign debts of the institution pursuant to the current foreign currency-denominated foreign debt management rules.
(2) Trade credit, non-financing guarantee, and RMB trade financing. The trade credit (including payables and advances) and RMB trade financing of enterprises in SHFTZ as generated from real cross-border transactions shall not be recorded in overseas financing under separate accounting. The various RMB trade financing of financial institutions as generated from the settlement of real cross-border transactions shall not be recorded in overseas financing under separate accounting. The non-financing guarantee provided by financial institutions in support of the international trade and investment activities of the real economy shall not be recorded in overseas financing under separate accounting.
(3) Panda bonds for self-use: where the offshore parent company of an enterprise in SHFTZ issues RMB bonds in China to form a wholly-owned subsidiary of the group in SHFTZ, the funds shall not be recorded in overseas financing for separate accounting.
(4) Fund transfers within the group: the centralized management of cross-border funds (limited to cash flows generated by operating activities and industrial investment activities) subject to the intra-group centralized management where the principal enterprise is a SHFTZ enterprise shall not be recorded in overseas financing under separate accounting.
(5) Assignment and relief: if the offshore loans under separate accounting have been capitalized, or the debts have been relieved, the commensurate amounts shall no longer be recorded in overseas financing under separate accounting. The overseas funds obtained from the assignment of off-balance-sheet debt assets in SHFTZ as formed in overseas financing under separate accounting shall no longer be recorded in overseas financing under separate accounting, and no alteration shall be made to the amounts originally recorded in overseas financing under separate accounting.
2. Types of transactions recorded in overseas financing under separate accounting
(1) Foreign currency-denominated trade finance. The foreign currency-denominated trade finance of financial institutions and enterprises shall be recorded in overseas financing under separate accounting at the proportion of 20%, with the term conversion factor being set as standard 1.
(2) Off-balance-sheet financing (contingent liabilities). The foreign contingent liabilities (including financing guarantees) formed when a financial institution provides services for clients of free trade accounts based on authentic cross-border transactions and asset and liability currency and maturity risk hedging management needs shall be recorded in overseas financing under separate accounting at the proportion of 20%. The contingent liabilities formed from participating in trading on international financial markets out of its own currency and maturity risk hedging management needs shall be recorded in overseas financing under separate accounting at the proportion of 50%.
Where an enterprise or financial institution providing a cross-border guarantee has actually performed the guarantee contract and a new cross-border financing transaction is thus concluded, the amount involved shall be all recorded in overseas financing under separate accounting.
(3) Others. Other various types of foreign debts shall be recorded in overseas financing under separate accounting according to the facts.
The Shanghai Headquarters of the PBC may adjust the types of transactions that should be recorded in overseas financing under separate accounting in view of business operations and risk management needs.
Article 7 The ceiling on an enterprise's overseas financing under separate accounting may not exceed its capital × overseas financing leverage ratio × macroprudential adjustment parameter, where capital, unless otherwise specified, includes paid-in capital (or equity) and additional paid-in capital, as indicated in the capital verification or audit report for the last period as issued by a domestic certified public accountant. In principle, the ceiling shall be calculated once every year.
The leverage ratio for overseas financing under separate accounting shall be set by the type of entity. In particular, the leverage ratio for a corporate enterprise in SHFTZ (not including branch offices) shall be twice its capital; that for a non-bank corporate financial institution in SHFTZ that has separate accounting units shall be three times its capital; that for a non-bank financial institution's separate accounting unit at the municipal level of Shanghai shall be 8% of the capital of its domestic corporate body; that for a newly formed corporate banking institution in SHFTZ that has separate accounting units shall be five times its Tier 1 capital; that for a bank's separate accounting unit at the municipal level of Shanghai shall be 5% of the Tier 1 capital of its domestic corporate body; that for a corporate non-bank financial institution in SHFTZ that has no separate accounting unit but has opened free trade accounts with the separate accounting unites of other financial institutions shall be twice its capital; and that for a non-bank corporate financial institution's directly subordinate branch company in SHFTZ shall be 5% of the capital of its domestic corporate body.
The initial value of the macroprudential adjustment parameter shall be 1.
Article 8 The interest rate of an offshore loan under separate accounting shall be determined by both sides under the business principle within a reasonable range.
An offshore loan denominated in a foreign currency shall be recorded as follows on the basis of the exchange rate on the date of withdrawal:
For a foreign currency traded on the China Foreign Exchange?Trade System (“CFETS,” including regional markets), the RMB central parity rate shall apply; for a foreign currency not traded on the CFETS, the RMB reference rate published by the CFETS shall apply.
Chapter III Trigger Mechanism for the Macro Control of Overseas Financing under Separate Accounting
Article 9 The Shanghai Headquarters of the PBC shall, as required under the “macroprudential principle,” establish a macro control mechanism for overseas financing under separate accounting together with relevant departments. Such mechanism shall be composed of the risk early warning indicator system and the corresponding macro control policies and instruments.
Article 10 The Shanghai Headquarters of the PBC shall establish a corresponding risk early warning indicator system for overseas financing under separate accounting on the basis of the data gathered by its systems, the economic and financial operations in SHFTZ, and cross-border and cross-SHFTZ capital flows. Main early warning indicators include: early warning indicators on the scale of overseas financing, early warning indicators on the structure of overseas financing (overseas financing currency structure, exchange rate sensitivity, maturity structure, and maturity mismatch rate, among others), early warning indicators on cross-border/SHFTZ capital flows, and early warning indicators on credit supply and demand in SHFTZ, among others.
Control instruments for parameters in overseas financing under separate accounting include overseas financing leverage ratio, risk conversion factors, and macroprudential adjustment parameters. Other instruments include those to extend the term of deposit of raised funds, to collect special deposit reserves for raised funds, to collect interest-free deposit reserves, and to carry out scale control to maintain the financial stability of the state when necessary.
The Shanghai Headquarters of the PBC may adjust and improve the aforesaid risk early warning indicators and macro control policies in view of monitoring and risk prevention and control needs.
Article 11 The risk early warning system of overseas financing under separate accounting in SHFTZ includes three risk levels: Level I (low risk), Level II (medium risk) and Level III (high risk).
When a risk early warning indicator reaches the critical value of a risk level, the Shanghai Headquarters of the PBC will send a corresponding risk alert to the financial institution concerned, and may use the aforesaid instruments to make appropriate adjustments. Such adjustments may be made by using a single instrument or a combination of instruments and against a single financial institution or several or all financial institutions. Financial institutions shall cooperate in the macro control and management of the Shanghai Headquarters of the PBC.
Where the balance of overseas financing under separate accounting exceeds the ceiling during the term as a result of adjustment in the risk conversion factor, overseas financing leverage ratio or macroprudential adjustment parameter, the existing loan contracts may be held to maturity, and no new overseas financing under separate accounting may be handled before the a new ceiling is set.
Chapter IV Filing of Information and Uses of Funds
Article 12 An enterprise or non-bank financial institution in SHFTZ shall, after entering into an offshore loan contract yet at least three working days before withdrawing funds, declare the overseas financing transaction under separate accounting to the Shanghai Headquarters of the PBC through its settlement bank.
A subject in SHFTZ shall truthfully provide the following materials to its bank:
(1) The original offshore loan contract, a photocopy of the main terms of the contract, and, if the contract is in a foreign language, a Chinese translation of its main terms.
(2) The business license.
(3) The capital verification or audit report for the last period.
(4) The resolution of the board of directors on overseas financing, or, for a non-bank financial institution's branch company, the authorization document of its domestic corporate body.
(5) A status report on the offshore RMB loans, foreign debts denominated in foreign currencies, and overseas guarantees provided for the entity by the date of declaration.
(6) Supplementary explanations to be provided for the aforesaid materials.
Where a bank discovers that the actual loan amount as indicated in the materials submitted by an enterprise or non-bank financial institution in SHFTZ exceeds the ceiling of overseas financing under separate accounting as prescribed by these Rules, the bank shall refuse to provide settlement services for the funds obtained by the enterprise or institution from overseas financing and shall report it to the Shanghai Headquarters of the PBC.
Where a financial institution has any overseas financing transaction in its separate accounting units, it shall directly declare the transaction through the relevant system of the Shanghai Headquarters of the PBC.
All materials about overseas financing under separate accounting shall be retained with settlement banks for future reference for five years upon the end of each financing transaction.
Article 13 When providing settlement services for the overseas financing under separate accounting of enterprises and non-bank financial institutions in SHFTZ, banks shall inquire about the basic information about enterprises and non-bank financial institutions in SHFTZ through relevant systems of the Shanghai Headquarters of the PBC to confirm that their overseas financing complies with these Rules.
For enterprises and non-bank financial institutions in SHFTZ that engage in overseas financing under separate accounting for the first time, before inquiring about their basic information, banks shall, based on the aforesaid materials provided by them, send their capital and other information to relevant systems of the Shanghai Headquarters of the PBC to automatically generate the ceiling of their overseas financing under separate accounting. Where any material capital change occurs to a subject in SHFTZ which has engaged in overseas financing under separate accounting, it may provide relevant certificates to a bank to apply for modifying its relevant information in the system.
Where a subject in SHFTZ has an offshore loan denominated in a foreign currency or an offshore loan denominated in RMB or a foreign currency which is not a capital transfer under the ceiling of overseas financing under separate accounting, it shall undergo the foreign debt registration or recordation procedure with the Shanghai Headquarters of the PBC in accordance with relevant requirements for foreign debt management; where it has any RMB offshore loan under separate accounting, it shall file relevant financing information with relevant systems of the Shanghai Headquarters of the PBC through the settlement bank with which it opened its free trade account.
Article 14 Enterprises and non-bank financial institutions in SHFTZ shall use the funds obtained from overseas financing under separate accounting in compliance with relevant provisions on free trade accounts, for their own production and other operating activities and for the construction of projects in SHFTZ and outside China, and in consistency with the industry-based macro regulation direction of the state and SHFTZ.
The offshore loans processed by financial institutions through their separate accounting units in SHFTZ shall be used for their own operating activities under separate accounting, be used for business operations in SHFTZ and outside China, serve the development of the real economy, and be used in consistency with the industry-based macro regulation direction of the state and SHFTZ.
Article 15 A SHFTZ enterprise engaged in overseas financing under separate accounting shall publish its annual balance sheet, income statement and cash flow statement in standard formats through the annual report publication platform for enterprises in SHFTZ. The separate accounting units of financial institutions shall, before June 30 of each year, update the capital of enterprises that have opened free trade accounts with them through the annual report publication system for enterprises in SHFTZ.
For an enterprise which has started business for more than one year but still has not published relevant information through the publication platform or an enterprise which has been included in the list of enterprises with abnormal operations, no financial institution may provide cross-border settlement services for its overseas financing under separate accounting. The qualification that has been granted to it for overseas financing under separate accounting may be valid until it expires. For an enterprise in the list of enterprises subject to intensified supervision as published by six ministries and commissions including the PBC, financial institutions shall provide cross-border settlement services for its overseas financing under separate accounting in a prudent manner.
Chapter V Off-Site Checks, On-Site Inspections, and Punishment of Violations
Article 16 The Shanghai Headquarters of the PBC shall, on a regular basis or from time to time, conduct off-site checks on the overseas financing activities handled by financial institutions and SHFTZ enterprises through the separate accounting units for SHFTZ. If discovering any problem, the Shanghai Headquarters of the PBC shall carry out monitoring to investigate, and the financial institution concerned shall give feedback without delay. On-site inspections may be conducted when necessary.
Article 17 In the event of failing to file relevant information about overseas financing in separate accounting or filing false information, the Shanghai Headquarters of the PBC will circulate a notice of criticism for the financial institution concerned after verifying relevant facts and order it to rectify within a specified time limit, and may also impose a punishment in accordance with the Law of the People's Republic of China on the People's Bank of China, the Regulation of the People's Republic of China on Foreign Exchange Administration, and other relevant provisions.
Where any institution engages in overseas financing for separate accounting beyond the approved quota or uses raised funds in incompliance with these Rules, if the raised funds have not been used yet, they shall be returned through the original routes; if the raised funds have been used, the Shanghai Headquarters of the PBC may impose a punishment on the borrower in accordance with the Law of the People's Republic of China on the People's Bank of China, the Regulation of the People's Republic of China on Foreign Exchange Administration, and other relevant provisions; if the circumstances are serious, the Shanghai Headquarters of the PBC may suspend its overseas financing business for separate accounting.
For a financial institution that settles offshore loans under separate accounting in excess of the prescribed amount, the Shanghai Headquarters of the PBC will order it to make rectification; for a financial institution that does so for multiple times, the Shanghai Headquarters of the PBC may suspend its separate accounting business.
Chapter VI Supplementary Provisions
Article 18 These Rules shall be subject to interpretation by the Shanghai Headquarters of the PBC.
Article 19 These Rules come into force on the date of issuance. For any discrepancy between any previous provisions of the Shanghai Headquarters of the PBC and these Rules, the latter shall prevail.