(Yicai) Dec. 4 -- The China Shanghai Pilot Free Trade Zone will launch a pilot program, allowing qualified companies to open an upgraded FT account, which will enable them to direct transfer funds offshore.

Through this new FTZ Cross-Border First-Tier Channel, which will come into effect tomorrow, the selected firms will be able to independently complete operations such as domestic and foreign currency conversion, cross-border receipts and payments, and overseas hedging within the same account system.

To be eligible for the pilot, firms need to be registered for more than one year, have owner’s equity of no less than CNY200 million (USD28.3 million), annual operating revenue of at least CNY1 billion (USD141.5 million), and a balance of payments of more than CNY100 million. Priority will be given to those located in key areas, such as the Lingang Special Area.

From tomorrow, the pilot companies will also be able to conduct cross-border receipts and payments, cross-border financing, and overseas lending without being subject to traditional quota control or differential constraint. They will no longer need to go through the mandatory filing, review, or special account opening procedures.

After the upgrade of the FT accounts, the timeliness of fund collection and allocation for multinational companies and trade enterprises will be shortened to T+0 from T+3, which is expected to significantly reduce companies’ financial costs, Zeng Gang, chief expert at the Shanghai Institution for Finance and Development, told Yicai.

Moreover, the eligible firms could more flexibly allocate cross-border funds, Zeng noted. For example, multinationals can take advantage of the interest rate differential between domestic and foreign markets to optimize their financing arrangements.

The efficiency of fund collection and allocation for trade firms will be greatly enhanced, and domestic small- and medium-sized enterprises will be able to obtain more low-cost foreign financing, he added.

“Banks’ cross-border business ecosystem will also undergo structural changes from the traditional role of a channel provider to that of a comprehensive service provider,” Zeng said. “Their business focus will extend from simple cross-border settlement to areas such as global cash management, risk hedging, and cross-border investment and financing.”

FT accounts have played a big role in facilitating cross-border transactions over the past decade, but they still have issues, such as the separate management of domestic and foreign currencies, review on a transaction-by-transaction basis, and a long cross-border payment and settlement chain, Zeng explained.

Compared with existing cross-border capital management tools, the upgraded FT accounts have formed a competitive institutional combination in terms of costs, risks, and efficiency, said Ma Wenjie, director of the Shanghai Institute of International Finance Center at Shanghai University of Finance and Economics. “It can reduce firms’ financial costs and also improve the accuracy of their risk management.”

In the medium and long term, the successful operation of this new mechanism will become a replicable and spreadable institutional model for other FTZs nationwide, and it will also lay the foundation for building a high-level open economic system, Zeng believes.

With the new system, Shanghai’s cross-border financial opening-up will enter a new stage. The city will attract more multinational firms to set up their regional fund centers there, and accelerate its development into an international financial center with global resource allocation capabilities, insiders predicted.

This FT account upgrade is part of a policy document released by the Shanghai Head Office of the People’s Bank of China at the end of last month.

Editors: Tang Shihua, Futura Costaglione