FTZ launches accounting unit for cross-border fund flow

SHANGHAI - China's central bank has issued regulatory details to monitor cross-border capital flow at the Shanghai free trade zone (FTZ) by asking banks in the city to establish an accounting system that separate transactions in the zone from those elsewhere in China.

The mechanism, called the free trade accounting unit, lays out the systemic arrangement for the free trade account (FTA), which authorities promised to roll out soon. Expectations are that the account will enable capital to move between the FTZ and offshore with less restrictions.

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Under the separate accounting arrangement, the FTA can enable capital flow with offshore accounts under prudent oversight from banks and regulators. Meanwhile, moving capital between other onshore accounts and the FTA is still considered as cross-border transaction and is subject to limited access.

Authorities did not specify the factors determining how much access funds from the FTA can be transferred to an onshore account.

"The (separate accounting) system is a tailored platform where many capital account-related transactions are executed. This also features Shanghai FTZ as a special zone and will facilitate China's capital account openness," economists with ANZ Banking Group said in a research note on Thursday.

The central bank has also issued an accompanying document clearly describing risk-control measures for the separate accounting unit. In an effort to insulate risks stemming from activities in the FTA, the central bank asks that all foreign exchange positions resulting from currency conversions under the FTA be squared within the FTZ or offshore.

Zhang Xin, deputy director of the central bank's Shanghai head office, said the separate accounting system is designed to facilitate financial activities that will meet the needs of the real economy.