China overhauls cross-border financing regime

China's central bank, in an effort to draw capital inflows and energize a slowing economy, has eased cross-border financing rules and done away with longstanding hurdles to funding channels for domestic businesses.

The People's Bank of China (PBOC) issued the Circular on the Nationwide Implementation of Macroprudential Administration of the Overall Cross-border Financing (中国人民银行关于在全国范围内实施全口径跨境融资宏观审慎管理的通知) (Circular) on April 27. The Circular, which took effect on May 3, is an expansion of a pilot scheme first applied in the Free Trade Zones in January this year.

It streamlines approval procedures for both Chinese corporates and foreign-invested enterprises (FIEs), lays down a new formula for calculating foreign debt limits and rearranges reporting lines. The Circular allows PRC-funded companies to borrow money from overseas banks or shareholders with significantly less trouble, and the move will cut financing costs, allowing companies to access cheaper funding offshore. The one-week renminbi interbank rate in Hong Kong on June 8 was 1.87%, compared with around 2.25% on the mainland.