China implements new foreign exchange rules in the Free Trade Zones

Between July and August 2019, China's State Administration of Foreign Exchange ("SAFE") made one step forward towards China's comprehensive foreign exchange reform. The local branches of SAFE in China's 12 Free Trade Zones ("FTZs") issued a series of foreign exchange measures ("FTZ Pilot Rules") that introduced substantial changes to the existing foreign exchange regime.

The FTZ Pilot Rules materialize to a certain extent SAFE's commitment to optimize China's foreign exchange rules to keep up with China's efforts in liberalizing its economy, as SAFE previously announced this year, which marks the 40th anniversary of SAFE's establishment. In particular, they introduce the following substantial changes to the existing foreign exchange regime: (1) opportunity for Chinese companies to opt into the foreign borrowing limit regime provided by Circular No. 9 issued by the People's Bank of China in 2017, (2) freedom to use capital account funds to carry out equity investment in the PRC, (3) freedom to choose the currency to be used to disburse and repay cross-border loans, and (4) simplified foreign exchange procedures with respect to certain types of transactions.

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