A roadmap to cross-border finance

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The Bank of International Settlements (BIS) recently reported that renminbi (RMB) had for the first time become one of the top 10 most traded international currencies. Trading in RMB has tripled over the last three years to $120bn (£75bn) a day in April 2013. The increase in trading is a direct result of China’s ambitious reforms to ensure that China’s place as the second-largest economy in the world is underpinned by the use of RMB in international trade.

Freeing capital controls and creating deep and liquid pools of RMB capital is also creating a growing market in RMB-denominated financing. China’s regulators have recently announced changes that, broadly speaking, ease the controls on financing between the People’s Republic of China (PRC) and offshore jurisdictions, as well as the provision of security given in support of that financing. The changes are significant because they facilitate cross-border funding through the provision of loans off shore and allow cash held in China to be swept off shore. That funding will be used to fund cross-border trade, offshore investments and acquisitions and enable onshore treasury operations to be managed in global treasury pools. The changes further evidence China’s determination to gradually ease capital account controls.

This issue focuses on: inbound finance, where a PRC-established corporate entity (whether a foreign invested enterprise or other PRC corporate entity) (each an onshore corporate) borrows offshore or issues bonds off shore; outbound finance, where an onshore corporate lends money to an offshore entity; cross-border security, where a security (such as a mortgage or pledge over assets) or guarantee (credit support) is given to support inbound finance or outbound finance; and the rationalisation of cross-border treasury operations…

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