With the gradual and deepening of crackdown on false re-export trade, the current false re-export trade has been curbed to a certain extent, and speculative arbitrage of re-export trade has converged.

There is still much room for development in trade finance

Although many banks have recently tightened financing of commodity imports, this model of import trade financing will not completely disappear.

Trade financing is one of the important ways for commodity companies to solve their cash flow problems. The import trade of commodities cannot be separated from the support of bank funds. The normal trade financing operation with imported commodities is reasonable and legal.

In China, more and more commercial banks have begun to embed investment in the business process of enterprises in the form of investment banking, providing trade matching and financing under the trade, such as providing hedging financing for commodities, matching basis transactions, and cross-border transactions. Multi-currency trade, overseas expansion, trade syndication and other services are an effective combination, and even directly participate in trade as a party in the trade chain.

Shareholder and related party loans

Domestic and foreign-invested enterprises can borrow RMB loans from their overseas parent company or affiliated company within a certain amount (such as the “bet difference”, that is, the difference between the total investment of the foreign-invested enterprise and the registered capital).

Similarly, domestic parent companies and domestic banks can provide RMB loans for overseas projects of “going global” companies.

Domestic and foreign enterprises are eligible for the same loan

In March 2016, the central bank's Shanghai headquarters announced the 'Notice on Supporting the Expansion of the Cross-border Use of RMB in the China (Shanghai) Pilot Free Trade Zone', and channels for domestic enterprise related party loans were opened.

According to the previous foreign debt management system, foreign-funded enterprises can borrow foreign debt funds from overseas related parties within the limit of 'bet difference', but Chinese-funded enterprises need the approval of regulatory agencies such as the Development and Reform Commission and the SAFE if they want to do the same financing action. This time the 'Notice' broke this red line, allowing Chinese-funded enterprises to have the same qualifications for borrowing foreign debt funds as foreign-funded enterprises.

Borrowing foreign debt

Borrowing foreign debts means that multinational enterprises with investments in China can use the lower RMB interest rates in the offshore RMB market to issue RMB bonds to raise funds and use them within the limits allowed by remittances.

'Dim Sum Bond' Financing

Domestic companies that issue foreign debt financing are more commonly issued bonds denominated in RMB in the Hong Kong market, commonly known as 'dim sum bonds'.

For a long time, due to the steady rise of the value of the Renminbi, investors in “dim sum bonds” can not only enjoy bond gains, but also gain additional appreciation gains in RMB. In addition, in the initial development of the offshore RMB bond market, supply is in short supply, making “dim sum bonds” Even if it is issued at a lower yield, it will be welcomed by investors. The capital cost of the issuer's financing through the issue of “dim sum bonds” is not only lower than in China, but also has a certain competitive advantage over the financing costs of other foreign currencies. This has attracted many institutions to issue “dim sum bonds” and directly promote “dim sum bonds”. The 'debt' issue volume has grown rapidly.

However, as the RMB exchange rate approaches an equilibrium level, the unilateral and one-way appreciation of RMB abroad is beginning to weaken. In addition, the increase in the issue of “dim sum bonds” has changed the market supply and demand relationship, and investors have demanded “dim sum bonds” yields. Higher and higher, the financing cost of the 'dim sum debt' issuer has risen accordingly, and the 'financial debt' has gradually weakened its financing cost advantage.

'Blowout' of RMB bond financing in offshore markets

Since last year, the scale and number of RMB bond issuances in the offshore market have shown a “blowout” type of growth, which has attracted attention.

According to the data from September 2016, the newly issued RMB bonds in the offshore market reached US $ 23.1 billion, more than any previous year, more than double the same period in 2013; the number of issuances was 107, far more than 61 in the same period in 2013. Times. Lower overseas financing costs and a stronger willingness to invest in RMB bonds in the market are important reasons for the rapid growth of RMB bonds in the offshore market.

Although Hong Kong is currently the most important offshore RMB market, Singapore, Taiwan, and especially London have made rapid progress in developing the offshore RMB market recently. In fact, since last year, the battlefield for Chinese financial institutions to issue bonds is shifting from the Asia-Pacific region to Europe.

For the reasons for the increase in the issuance of offshore RMB bonds in Europe, on the one hand, European economic growth is weak, and there are few attractive investment tools, and higher-yielding RMB bonds are a good choice; on the other hand, London, Frankfurt, and others are actively The construction of the offshore RMB center in Europe has been facilitated to facilitate payment and trading of RMB bonds. At the end of March last year, London and Frankfurt established cross-border RMB clearing arrangements. CCB and Bank of China were successively designated as London and Frankfurt RMB clearing banks in June.

Domestic insurance and external loans

Internal guarantees and external loans refer to the guarantee provided by the company's internal head office to the bank, and the bank solves the loan problem to the company externally.

Within the guarantee limit, a domestic bank issues a letter of guarantee or standby letter of credit to provide financing guarantees for domestic companies' overseas companies without the need for individual approval, which greatly shortens business processes compared with ordinary financing guarantees.

'everyone likes them'? Beware of risks

A yuan-based overseas financing business with “internal guarantees and external loans” brought triple benefits to the issuing banks in the Mainland.

First, in the case of such tight funds and the fierce deposit war between banks, the issuing bank has obtained a stable annual interest payment of 3.25% RMB time-term pledged deposits. If the pie is dropped in the sky, it will be stable whether it is a loan or a loan. Earn nothing.

Second, the issuance business has brought considerable international business settlements to mainland banks.

Third, this business is not subject to the regulatory indicators of the central bank and the China Banking Regulatory Commission because it is in line with the 'RMB cross-border trade business settlement' which is strongly promoted by the regulatory authorities.

The reason why enterprises actively raise funds to do more and do this kind of business quickly is because of the considerable spread between local and foreign currencies and the arbitrage space of exchange rates under the expectation of RMB appreciation.

If the renminbi can appreciate as expected, it will be pledged to companies that issue renminbi letters of credit with mainland banks to purchase foreign currency remittances at an exchange rate lower than the borrowing period and return loans from overseas banks. Overseas banks obtain a loan interest and corresponding settlement fees; Mainland banks obtain a right to use a time deposit and related expenses; and the issuing company obtains stable interest rate spreads and returns, and even adds profit from commodity sales. All three parties were happy.

However, as the Fed tightens currency liquidity or the RMB depreciates due to other factors such as the intervention of the People's Bank of China in the foreign exchange market, the benefits of arbitrage are likely to fail. The more extreme consequence is that the financing company abandons the RMB funds pledged to the bank by internal geology, and regards the foreign currency borrowed from overseas as its own. In this way, the appreciation of the foreign currency received by the enterprise will be at least undamaged; the banks in the Mainland did not lose any money after accepting the RMB; however, overseas banks held a devalued RMB and the risk broke out.

In fact, the arbitrage income of financing domestic and foreign loans has fallen sharply in the past two years. According to people in the industry, arbitrage in this way in the past, it was easy to make a profit of 120% to 150% in one year, but because of too many people doing it in the past two years, and the involvement of the bank was too deep, the customs declaration fees skyrocketed. Profits have been squeezed to just 30%. Coupled with the central bank's intervention in the foreign exchange market early last year, exchange rate fluctuations intensified, and the 2% exchange rate fluctuation range was a great blow to arbitrage operations.

Benefits and risks of 'channel business'

In early August 2016, a paper announcement by Dongjiang Environmental Protection Co., Ltd., a listed company, caused a huge response in the financial market: Dongjiang Environmental Protection will introduce cheap overseas funds with an annual interest rate of less than 7% through a financing lease channel.

The cross-border RMB financing announced by Dongjiang Environmental Protection is also a type of domestic guarantee and external loan. It is mainly through the cooperation of silver leasing, and cooperating with the bank's business to publish the balance sheet without occupying the credit line. The financing price obtained by the enterprise is also lower than the domestic financing cost.

The company intends to use a bank acceptance bill pledge to open a domestic bank with a foreign bank as the beneficiary and a leasing company as the guarantee. The overseas bank will provide the leasing company with a cross-border guarantee Loans, and the leasing company puts this loan to the company in the form of a financial lease.

This cross-border financing method of Dongjiang Environmental Protection is relatively typical, and its core is to use the foreign debt quota of foreign-funded financial leasing companies.

According to regulations, the foreign debt limit of a foreign-funded financial leasing company can be up to ten times the total net assets. The 2013 new foreign debt management measures stipulate that the total risk assets at the end of the previous year (A) are calculated, and then 10 times the net assets (B) are calculated, and then (BA) is used as the maximum limit for the balance of new foreign debts that can be borrowed during the new year. .

It is not a secret to attract overseas gold through financial leasing. Arbitrage began to occur in 2012. Many companies are using the foreign borrowing company's overseas borrowing 10 times leverage to revitalize existing assets, using foreign financing leasing as a channel, and using sale and leaseback to obtain cross-border funds.

Although it is possible to obtain a low price of capital through overseas funds, its potential risk cost is also high, and it is necessary to do a good job of risk aversion.

There are two types of offshore financing: RMB and USD. Borrowing USD funds is subject to exchange risk. There is no complicated exchange process for borrowing RMB, but the price of funds is higher than USD borrowing. If the entire operation plus other costs such as guarantee fees, withholding taxes, and foreign financing lease companies collect the channel fee, the cost will be about 6.15% per year for a three-year period. At present, borrowing in US dollars is still the mainstream of cross-border financing.

At the same time, interest rate risk also exists. Financing leasing companies often adopt foreign currency floating interest rates to reduce the cost of borrowing foreign debt, and the collection of interest rates is reflected in the form of installment lease payments.

Therefore, if the RMB depreciation rate is too large and the foreign currency interest rate continues to rise, it will lead to the inability of domestic financial lease rents to cover the principal and interest of foreign debt borrowed by the leasing company, which will cause the risk of claims.

In addition, the terms of use of funds by enterprises and overseas funds are also different. The sale and leaseback of financial leases generally requires an entire operating period of 3 to 5 years, while the term of overseas funds is generally 1 year, and there may be mismatches in terms of funds. In this case, swap transactions are needed, but this will also increase the capital cost of the financing party.

Cross-border borrowing

In February 2016, the central bank's Shanghai headquarters announced the release of the “Notice on Supporting the Expansion of the Cross-border Use of RMB in the China (Shanghai) Pilot Free Trade Zone”, and the RMB offshore borrowing business opened.

Earlier, the 'Implementation Rules for the Implementation of the Interim Measures on the Management of Qianhai Cross-Border RMB Loans' was issued to introduce low-cost funds from Hong Kong to support infrastructure construction in Qianhai, Shenzhen, as well as R & D, production and operations of Qianhai enterprises.

Overseas Borrowings in Shanghai Free Trade Zone

In August 2016, the seventh offshore RMB corporate survey report released by Standard Chartered revealed that one-third of the companies surveyed expressed interest in cross-border RMB borrowings in the Shanghai Free Trade Zone; 25% of companies said they had, It is planned to set up a base in the Shanghai Free Trade Zone within the next six months; RMB cross-border two-way borrowing has become the main focus of the Free Trade Zone. One-third of the existing and ready-to-register companies have or are planning to conduct RMB cross-border borrowing.

In the Shanghai Free Trade Zone, the RMB funds borrowed by enterprises from abroad can be transferred back to China, but they need to be deposited in a special settlement account opened by a bank in Shanghai, and the use of the funds is also specified, which can only be used for production in the zone The purpose of operation, project construction within the region, and construction of overseas projects is to curb the space for cross-border arbitrage.

The attractiveness of RMB offshore borrowing in the free trade zone is obvious. At present, domestic capital is tighter than overseas. Overseas borrowing means lower financing prices. At present, enterprises in the free trade zone can borrow RMB funds from overseas in various ways. They can borrow from overseas banks or from their parent companies. At present, the main funds come from the Hong Kong market.

Although the reduction of financing costs has brought major benefits to the company, the company does not want to borrow as much as it wants. The Shanghai Free Trade Zone has introduced the concept of capital leverage, and companies can borrow up to twice the paid-up capital. Non-bank financial institutions can borrow up to 1.5 times the paid-up capital.

Qianhai cross-border loan

Shenzhen Qianhai's liberalization of cross-border RMB loans with low interest rates for overseas funds is an important step to promote capital account liberalization. Enterprises registered in Qianhai and actually operating and investing in Qianhai can borrow RMB funds from banks operating RMB business in Hong Kong.

The lenders of this type of business are Hong Kong financial institutions operating RMB business. The main points of Qianhai's reform and innovation work in 2014 pointed out that applying to the People's Bank of China to broaden the source and use of funds for cross-border RMB loans, and expand the lending body to overseas financial institutions, in addition to Hong Kong, it may attract financials in Taiwan and Singapore mechanism.

The interest rate for Qianhai cross-border RMB loans is determined independently by both borrowers and borrowers, and the interest rate is significantly lower than the normal domestic loan level; the term of the loan is not fixed, and the borrower and the borrower independently determine within a reasonable range according to the actual use of the loan.

Specifically, the business model of cross-border lending includes bank acceptance bill pledge, asset mortgage / pledge, borrowing of existing credit lines from shareholders and shareholders, new applications for credit lines by enterprises, and use of cross-border loans.

Major breakthroughs in the control of Qianhai Capital, foreign debt, and overseas listed funds

On March 8 this year, the Shenzhen Municipal Administration of Foreign Exchange released the “Implementation Rules for Pilot Implementation of the Examination and Payment Facilitation of Capital Project Income of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone” (Shen Wai Guan [2018] No. 20). Carry out reforms easily. Pilot companies must meet the following conditions:

1. Registered in Qianhai Free Trade Zone

2. No major foreign exchange violations in the past three years
3.The trade grade of goods is A