China's central bank announced recently that it plans to launch a pilot program for comprehensive reforms of offshore trade finance services in Shanghai's Lin-gang Special Area.

The reforms will streamline offshore trade by eliminating pre-validation checks for payments and reduce the settlements period from the previous two to three days to real-time, significantly enhancing efficiency in offshore trade settlements.

The institutional innovation also signifies Lin-gang's alignment with the highest standards of international financial centers such as Hong Kong and Singapore in terms of offshore trade settlements, providing crucial institutional support for Shanghai's ambition to build an international trade center.

A view of Dishui Lake Financial Bay in Lin-gang. [Photo/Jiefang Daily]

Companies are required to establish and register dedicated offshore trade subsidiaries in Lin-gang. The Lin-gang Special Area Administration is responsible for identifying and recommending qualified enterprises for inclusion on a white list.

Subsequently, pilot banks will open Free Trade Enterprise (FTE) accounts for them, exclusively for conducting independent offshore business settlements.

Yin Jun, an official with the Lin-gang Special Area Administration, said fund transfers between pilot enterprises and overseas accounts or domestic non-resident accounts can be freely executed based on payment instructions.

This move completely isolates offshore fund flows from domestic business entities, ensuring that the domestic financial system will not be affected in the event of abnormal fluctuations, said Peng Yu, a researcher at the Institute of World Economy at the Shanghai Academy of Social Sciences.

By establishing offshore dedicated subsidiaries in Lin-gang, companies can effectively separate their offshore business from domestic fund flows, avoiding mixed regulatory oversight, Peng added.

The Lin-gang Special Area sets up a Cross-Border Service Center to facilitate offshore trade. [Photo/Jiefang Daily]

Currently, Lin-gang has attracted over 100 companies engaged in offshore trade. Experts said that the implementation of the reform pilot will have profound implications for Lin-gang in building an offshore trade finance ecosystem that is in line with international standards.