China will Expand its Cash-pooling Program, For Better Currency Management

The monetary authorities of China announced on Friday that the government would expand its cash-pooling services to multinational corporations (MNCs) to integrate domestic and foreign currency management on a larger scale.

According to statements made by the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) — Shanghai, Guangdong, Shaanxi, and other regions, would be included in the pilot program designed to make the usage and management of cross-border capital easier.

New measures put into the program include expanding the number of pilot locations and allowing MNCs to manage consolidated domestic and foreign currency receipts and payments in China for their foreign subsidiaries. Additionally, to facilitate improved centralization and management of their fund and reduce the costs associated with their financing. Also, the government pledged to substantially simplify the process of receiving and making payments across borders in RMB (Yuan) for these MNCs.

In China, two legal regimes govern cross-border cash pooling: one is governed by the SAFE and is referred to as “multi-currency cash pooling,” while the other is “RMB cash pooling,” managed by the PBOC. Theoretically, a single MNC is limited to establishing only one cash pooling facility for RMB funds, where it can designate either a domestic or an international member enterprise to serve as the pool header. And one cash pooling facility for multiple currencies where MNCs must have a domestic entity acting as the pool header.

For the Free Trade Zones (FTZs) in China (e.g., Shanghai, Tianjin), Special cash pooling is available, subject to the local regulations. Therefore, they can be more flexible compared with the regular cash pooling regime outside the FTZs regarding the requirements of the member enterprises, quotas, etc. To take advantage of the flexibility of the FTZs, MNCs may opt to create either multi-currency cash pooling or RMB cash pooling (or both) within these zones. However, MNCs must establish a firm as a pool header in the FTZ.

Regarding accounting, the enterprise serving as the pool’s header will establish a domestic master account, and the member businesses will set sub-accounts. The master account is used as the conduit for all international fund transfers resulting from the cash pooling. Kindly note that if an MNC wishes to keep a separate account to pool the funds of its overseas subsidiaries, the MNC may nominate one of them to open what is known as a Non-Resident Account (NRA) with a local Chinese bank.

In March 2021, the trial cash-pooling program originated in Beijing and the southern economic powerhouse of Shenzhen. Since then, the program has managed nearly $50 billion of cross-border transactions.