Free trade account launched for Shanghai FTZ

The free trade account for Shanghai's free trade zone (FTZ) was officially launched by China's central bank on Wednesday, as part of efforts to test bolder financial reforms in a risk-controlled environment.

The Shanghai Head Office of the People's Bank of China (PBoC) said five banks have met requirements to open the account. Companies registered in the FTZ - a 29-square-kilometer area to pilot economic reforms - will be able to use the account for financing, investment and other cross border transactions.

So far firms in the zone can borrow offshore funds, deploy working capital between subsidiaries both in and out of China and enjoy greater flexibility in managing foreign exchanges.

The move comes two weeks after the central bank issued operating details on the free trade accounting unit, an arrangement that separates cross-border transactions in the FTZ from other onshore transactions.

The separation is made to create an account in which funds can move freely between the FTZ and offshore entities while curbing speculative risks from overflowing into the onshore financial system.

The Shanghai Gold Exchange (SGE), which is set to roll out a gold exchange market in the zone for offshore investors by the end of this year, also said on Wednesday that it will handle settlements for its international gold trading in the free trade account system.

The SGE signed an agreement with Industrial and Commercial Bank of China, China Construction Bank and the Shanghai branches of Bank of China and Shanghai Pudong Development Bank to provide transaction and settlement services for its gold trade.

Under the agreement, offshore qualified investors and those in the FTZ can open a free trade account at the four banks to participate in gold trading at the exchange.

Authorities also indicated that they would accelerate the process for securities brokerage and insurance firms to open a free trade account for investment in the zone's proposed capital market.