SCIO briefing on master plan for Hainan Free Trade Port

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China Daily:

Judging from the experience of the construction of mature international free trade ports, an open financial policy is a basic feature. In the future construction of Hainan FTP, what are the considerations of the People's Bank of China in terms of financial policy design? Thank you.

Pan Gongsheng:

Thank you. The free movement of elements is an essential feature of a high-level free trade port, of which the free movement of capital is the most basic and central element, as well is a fundamental condition for trade and investment facilitation. In the process of building the Hainan FTP, the design and promotion of financial policies will follow three principles: first, the establishment of a free trade port policy and system will be carried out gradually step by step in accordance with the master plan. Second, finance will be positioned to serve the liberalization and facilitation of cross-border trade and investment. Third, the bottom line is that there will be no systemic financial risk. 

The overall framework of monetary policy includes the opening-up of high-level current accounts and capital accounts to facilitate cross-border trade, investment and financing. It also includes the opening-up of the financial services industry, financial reform and innovation to support the development of real economy, and the construction of a financial risk prevention and control system.

Above all, finance is positioned to serve the liberalization and facilitation of cross-border trade investment and financing. The high-level current accounts and capital accounts, opening-up policies and the cross-border fund flow managing policies are the most important and core financial policies in the construction of the Hainan FTP. In terms of cross-border trade, China's fund exchange for current accounts is fully open. Hence, a high-level of fund exchange facilitation can be expected at the Hainan FTP. The authenticity verification conducted by commercial banks will fully shift from pre-audit to post-audit. Meanwhile, we will improve policies for managing new forms of cross-border trade, such as cross-border payments from offshore trade and transit trade, and develop a policy environment that facilitates the operation of the global settlement center for transnational corporations.

In terms of cross-border direct investment, we will fully implement the pre-entry national treatment plus negative list foreign investment management system, exploring new forms of cross-border direct investment to meet market demand. We will also put QFLP (Qualified Foreign Limited Partner) and QDLP (Qualified Domestic Limited Partner) systems into trial application in the Hainan FTP.

Regarding cross-border financing policies, a new institution will be launched to facilitate cross-border capital raising on the island where the administrative framework in charge of transactions will be streamlined on a trial basis. A unified macroprudential management policy will be implemented to empower market entities with greater autonomy, and broader access to foreign currency exchange will be provided to local residents. Given that open financial policies usually lead to strong spillover, a fundamental platform, constituting established domestic and foreign currency, and free trade accounts as well as a holistic digital monitoring network of fund flows, will be created to ensure Hainan's financial openness.

Second, our efforts will be dedicated to securing Hainan's openness by providing financial services and upgrading financial prowess. The Hainan FTP will take the lead in implementing policies designed to expand local financial services and increase financial diversity. Meanwhile, the open economy is expected to be supported by financial institutions such as commercial banks, which are supposed to grow with stronger competences. Moreover, platforms involved in transactions of productive factors, such as global energies, shipping and bulk commodities, will also be buttressed.

Third, policies will be created to promote key areas encompassed in Hainan's modern industrial layout. Reforms, innovation and financial assistance will be fostered to expand essential industrial clusters and upgrade industrial competences. Financial services are expected to focus on trade and consumption, as well as ecological, scientific and technological development.

Fourth, a prevention and control system will be developed at the Hainan FTP to guard against financial risks. Monitoring alarms and evaluation systems as well as the macroprudential management system will oversee cross-border capital flows, and supervisory mechanisms established to counteract money laundering, terrorist financing and tax evasion will come into effect. In addition, a supervisory, administrative and coordinative scheme will be introduced to fortify the Hainan FTP's development.

In the next phase, the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) will take every opportunity to support the reform and opening-up of Hainan province by coordinating with local government and financial administrative bodies in accordance with the deployments made by the CPC Central Committee and the State Council and the schedules stipulated in the master plan. Thank you.

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