Discussion on Pilot Cash Pooling Program Integrating Domestic...
Title: Discussion on Pilot Cash Pooling Program Integrating Domestic and Foreign Currency Management for Multinationals
With the steady progress of China’s high-level opening-up and the faster pace of Chinese enterprises going global in recent years，demand for improved facilitation of cross-border funds has been on the rise. In March 2021，the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) launched the first pilot cash pooling program integrating domestic and foreign currency management for multinational corporations in Beijing and Shenzhen. In July 2022，PBOC and SAFE carried out a second round of the pilot program to implement the decisions and arrangements of the CPC Central Committee and the State Council，and supported policies relating to developing the “Headquarters Economy”. This second pilot program was established in Shanghai，Guangdong，Shaanxi，Beijing，Zhejiang，Shenzhen，Qingdao，and Ningbo，with the aim of further optimizing the coordinated use of cross-border funds for multinationals. Through an analysis of the second pilot program in Guangdong，this paper presents policy recommendations.
Reviewing the Outcomes of the Pilot Program
In July 2022，SAFE authorized its Guangdong Provincial Branch to oversee the second phase of the pilot cash pooling program，which integrates the management of domestic and foreign currencies for multinational corporations. Within its jurisdiction，participating enterprises are now authorized to carry out activities，including collection of funds and surplus/deficit adjustments，concentration of foreign debt quotas and overseas lending quotas，centralized collection and payment of funds under the current account，and net settlement of offsetting balances. In addition，there are certain limits for voluntary foreign currency purchases，allowing enterprises to make these purchases within certain constraints. Through the domestic main capital account，foreign member enterprises will centrally collect and pay both local and foreign currencies. They will also be able to purchase foreign exchange within the territory. This streamlines the process and ensures greater efficiency. This pilot program is an optimization of existing measures relating to the centralized operation and management of cross-border funds for multinationals. It aims to further reduce the cost of centralized operation and management of domestic and foreign funds for participating enterprises and better facilitate cross-border fund utilization for multinationals through a number of strategies，which include moderately lifting the overseas loan limits，streamlining cross-border fund transfer and allocation procedures，allowing enterprises to purchase foreign currencies within a certain limit，and supporting enterprises in conducting centralized RMB and foreign currency transactions for overseas member companies. As per feedback received from participating enterprises，the pilot program has facilitated efficient allocation and use of funds，leading to notable improvements in overall effectiveness.
Firstly，enterprises have been supported to carry out cross-border fund collection and surplus and deficiency adjustment according to their own operational needs. Through the pilot program，multinationals based in China can allocate funds out of the country in real-time to enhance the credit ratings of overseas subsidiaries and build trust in foreign markets. Moreover，by integrating domestic and foreign financial resources，multinationals can further reduce costs. For example，a pilot enterprise temporarily remitted capital from the integrated fund to overseas accounts to meet requirements for setting up overseas projects. This approach not only expedited the fundraising process but also prevented the potential financing costs that might have arisen from short-term borrowing.
Moreover，multi-currency collaborative management is supported. Chinese member enterprises of multinational corporate groups utilize the RMB as the base currency while overseas member enterprises employ a foreign currency instead. According to financial statement requirements，the entities responsible for foreign exchange gains and losses arising from internal loans in different currencies can differ，which will be directly reflected in the financial statement items of various member enterprises and groups.
Thirdly，procedures for cross-border fund transfers and allocations are simplified. Enterprises can directly transfer foreign debts borrowed or funds collected from Chinese member enterprises into their own accounts. This is achieved via the main account of their domestic fund without needing to transfer through the entrusted loan framework. Consequently，enterprises are relieved from the obligation of pre-signing entrusted loan agreements or submitting payment plans，thereby enhancing fund utilization efficiency while avoiding potential tax liabilities stemming from entrusted loan contracts.
Lastly，centralized fund management is further strengthened. The pilot program enables enterprises to conduct centralized collection and payment of funds between overseas member enterprises and overseas trading partners under the list of funds through the domestic funds main account. This further enhances centralized fund management for overseas member enterprises and reduces risks involved with depositing overseas funds.
Observations Regarding Current Limitations
Firstly，the efficiency of transferring RMB funds under the pilot program needs to be improved. According to the regulations of the pilot program，participating enter