How financial institutions in Lin-gang support offshore resale business
Shanghai issued several policies and opinions on promoting the further opening of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone in August 2019, including the Overall Plan for Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone and Opinions on Implementing Special Supporting Policies to Promote the High-quality Development of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as Special Supporting Policies).
The special supporting policies specify that enterprises in Lin-gang can carry out real and legal offshore resale business, and financial institutions can provide efficient and convenient cross-border financial services for enterprises in Lin-gang to carry out offshore resale business by referring to international general rules.
I. A case of offshore resale business
Atlas Copco China established a subsidiary in Shanghai in 2008 with a registered capital of 38.4 million yuan ($5.54 million), which mainly engages in the manufacturing of air compressors and other various types of equipment.
In 2018, the group decided to reorganize its internal resources and layout by changing its procurement and sales strategy from importing components, assembling them domestically, and then exporting them overseas to directly selling them to downstream overseas locations after overseas assembly.
After the change, Atlas (Shanghai) has become a middleman, with the procurement and sales taking place overseas, and the flow of goods skipping China entirely. An offshore resale trade structure was formed.
However, due to the specificity of offshore resale, a large number of fake offshore resale cases emerged, which were used for evasion of foreign currency or arbitrage at home and abroad, before the establishment of Lin-gang Special Area. Though regulators have stepped up inspections in recent years, some offshore resale businesses were still affected.
After the special supporting policies were issued, the Bank of China (BOC) Lin-gang branch immediately contacted Atlas and got an understanding of the company's internal compliance management mechanism. After in-depth analysis of the commercial viability of the trade structure, the transportation mode of goods, the pricing of the trade balance, and other factors, BOC sorted out the capital settlement process, supporting financial services and the overall risk prevention and control plan for Atlas to handle offshore resale.
II. Results of implementing the special supporting policies
Upon regulatory approval of the offshore resale business proposal, Atlas (Shanghai) immediately contacted the headquarters to assign the procurement and sales orders for the Asia Pacific region, with Atlas (Shanghai) as the designated trade services middleman.
In the fourth quarter of 2019, Atlas (Shanghai) completed the confirmation of five offshore resale transactions and remitted the funds to the foreign exchange account through BOC Lin-gang branch.
After the landing of this offshore resale financial service, the BOC Lin-gang branch received a boost to its reputation and attracted many enterprises, which accelerated the decision-making process of enterprises' layout in Lin-gang.
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