According to a responsible person of the People’s Bank of China (PBOC), enterprises are currently very enthusiastic about participating in cross-boundary Rmb trade settlement. In addition to Guangdong and Shanghai, many other provinces have applied to the State Council for permission to act as cross-boundary Rmb trade settlement pilots. The PBOC will, on the basis of further perfecting the pilot system, collaborate with all relevant departments to seek approval from the State Council for expanding the geographical coverage of the pilot scheme. Reportedly, cross-boundary Rmb settlement will not be subject to foreign exchange verification and cancellation management, while exports using Rmb settlement will be entitled to export VAT rebate/exemption.
It is understood that since the trial implementation of cross-boundary Rmb trade settlement was launched in July 2009, the overall volume so far is not large mainly due to three reasons. First, since this is a brand new business, administrative departments, enterprises and banks all need more time to learn and to cope with one another. Second, the geographic constraint on the pilot enterprises has to a certain extent restricted the scale of the pilot scheme. Third, related supporting systems and polices have not been fully introduced and some of them are still being formulated. For instance, PBOC is required to formulate the administrative measures for the information management system for cross-boundary Rmb settlement but the work of formulation is still in the pipeline.
Reportedly, efforts are being made by PBOC to implement information sharing with other ministries and commissions. For example, PBOC is negotiating with the General Administration of Customs (GAC) and the State Administration of Taxation (SAT) separately on matters such as memorandum of understanding on cooperation and system link-up. On the tax rebate front, SAT is actively formulating detailed measures for tax rebate/exemption. Upon completion of this task, it is believed that progress of the cross-boundary Rmb trade settlement pilot scheme will enter a new stage.
As Rmb settlement is not subject to foreign exchange verification and cancellation management, cross-boundary trade receipts and payments in Rmb do not have to go through verification and cancellation as receipts and payments in foreign exchange do. Rmb debits in trade settlement will only be registered as foreign debts and will not be subject to foreign debt management. Also, at the request of enterprises, they are allowed to deposit their export receipts in Rmb offshore.
To control risks, the selection criteria for pilot enterprises are strict. At present, selection of pilot enterprises is highly cautious. Pilot enterprises have to be recommended by the provincial people’s government jointly with relevant departments in the pilot region before being jointly examined and approved by six designated ministries and commissions. This can greatly reduce the risk involved in pilot enterprise selection.
Meanwhile, PBOC also attaches great importance to overall volume control. In the early stage of the pilot scheme, appropriate control is exercised on the number of pilot enterprises and the overall trade volume of all pilot points. Moreover, limits are set on the amount of Rmb bought and sold between the central bank and commercial banks as well as the amount of interbank lending in Rmb, thereby exercising indirect control on the trade volume of the pilot points. Emphasis is also placed on verifying the authenticity of trade transactions by adopting the post-settlement supervision method to ensure that the settlements in the pilot points are conducted under the trading account and that the mixing up of funds under the current account and capital account can be avoided.
