China to expand cross-border financing access

China is mulling raising the foreign debt ceiling for high-technology enterprises while expanding the reach of policies that facilitate corporate foreign exchange management, as part of the country's all-round efforts to enhance financial support for private enterprises, said the State Administration of Foreign Exchange.

Executives and experts said the moves will support private, tech-oriented enterprises to obtain more overseas financing and help private sector exporters save on costs and enhance efficiency, thus sharpening their international competitiveness while offsetting US investment and trade barriers.

"We will increase the quota for nationwide eligible high and new-tech firms, 'little giant' companies and tech-oriented small and medium-sized enterprises to autonomously borrow external debt at an appropriate time," a SAFE official said in an exclusive interview with China Daily.

High and new-tech enterprises are government-recognized companies that engage in high-tech innovation and research and development. "Little giant" companies refer to specialized and sophisticated SMEs that produce novel and unique goods and services.

This would be part of the country's efforts to deepen the reform of foreign exchange management to extend support for the private sector, including efforts related to cross-border investment and financing, foreign exchange rate risk management and foreign exchange policies to facilitate international trade.

"We will optimize and expand facilitation policies, tilting toward private entities with genuine need and good compliance, to better support the stability of foreign trade," the administration said.

Noting that private sector enterprises are playing an increasingly important role in foreign trade — not only in the growth of trade but also in terms of economic restructuring and innovative development — the administration said it is committed to providing strong financial support for the healthy development of the private economy and helping private enterprises "grow stronger and better".

"A series of measures will be gradually introduced, including optimizing and upgrading the cross-border cash pool policy for multinationals, simplifying the foreign exchange management of direct investment, expanding the facilitation quota for cross-border financing of innovative and tech enterprises, and optimizing the policy of facilitating foreign exchange receipts and payments under the capital account," SAFE said.

The external borrowing quotas for eligible enterprises selected based on the "innovation credit system" — a system proposed by the Ministry of Science and Technology to quantify and reward innovative achievements — will be raised, the administration said, while enhancing quota adjustment mechanisms to better support enterprises with promising development prospects in key industries and sectors.

"Raising the foreign debt quota will enable high-tech, private SMEs to further overcome net asset limitations and secure more funding for research and development and business expansion, offsetting any negative impact from US investment restrictions," said Liu Chunsheng, an associate professor at the Central University of Finance and Economics' School of International Trade and Economics.

"In a broader sense, this will help accelerate the commercialization of scientific advancements and strengthen China's position in the global industrial chain," Liu said.

Huang Yanxiang, co-founder &CEO of Shanghai CarbonNewture, a high-tech private enterprise serving as a decarbonization services platform, said that obtaining low-cost overseas green funding can help the company invest more in artificial intelligence applications and supply chain carbon tracking, thus better leveraging global resources to pursue internationalized development.

The administration said it will provide more convenient foreign exchange payment procedures for new forms of trade entities — including private enterprises — and further reduce the cost for enterprises managing risks associated with foreign exchange rate volatility.

"The ongoing policy efforts to facilitate foreign exchange payments and settlements in cross-border e-commerce are important for Chinese companies going global to provide a better customer experience," said Huang Zhengjie, general manager of ECHOLAC (Jiangsu) Co Ltd, a private suitcase manufacturer and exporter.

Hoping to see further cost reductions and procedure simplification regarding forex receipts and payments, Huang said cutting the cost of exchange rate hedging is also "of great necessity" for improving exporters' profitability, which is under pressure amid intensified international competition and tariff uncertainties.

Under the guidance of SAFE, the China Foreign Exchange Trade System announced this month a full exemption of trading fees for derivatives with maturities of two years or more in the interbank foreign exchange market, effective next month.

SAFE also guided the CFETS to waive trading fees for closing foreign exchange hedging positions for micro, small and medium-sized enterprises from 2022 to 2025.

Last year, enterprises used foreign exchange derivatives worth $1.6 trillion to manage exchange rate risks, with more than 38,000 new first-time participants in exchange rate hedging exercises, a relatively high level on record, SAFE said.

In terms of facilitating cross-border financing and investment, more than 1,000 multinationals had registered for the domestic and foreign currency cash pool policy as of the end of February, benefiting more than 18,000 enterprises at home and abroad, SAFE said.

Dong Yilang contributed to this story.

zhoulanxv@chinadaily.com.cn