Host: Zhao Meng, Financial Times reporter
Invited Guest: Dong Ximiao, Chief Researcher of Zhaolian and Deputy Director of Shanghai Financial and Development Laboratory
Xue Hongyan, Special Researcher of Sushang Bank
With the official opening and operation of the Hainan Free Trade Port, the level of free and convenient cross-border capital flow has continued to improve, and the vitality of open and innovative financial services has been continuously released.
According to the Financial Times, the cross-border capital flow management system for the Hainan Free Trade Port's multi-functional free trade account (hereinafter referred to as "EF account") has been further improved, achieving breakthroughs in multiple business scenarios and resulting in a significant increase in the number of accounts opened and business volume. At the same time, various domestic and foreign financial institutions are rapidly gathering, and the financial institution system of the Hainan Free Trade Port is becoming increasingly sound, providing stronger financial support for Hainan's trade and investment sectors to achieve a higher level of openness.
So, what new opportunities will the official closure of the Hainan Free Trade Port bring to banks' cross-border financial business? How should banks plan their strategies? How can regulatory authorities and banking institutions further mitigate related risks while ensuring that cross-border funds are both "open" and "controlled"? Recently, a reporter from the Financial Times interviewed two experts—Dong Ximiao, chief researcher at Zhaolian and deputy director of the Shanghai Financial and Development Laboratory, and Xue Hongyan, special researcher at Sushang Bank—on these hot topics.
Financial Times reporter: Free and convenient cross-border capital flows are a core indicator of the high-level opening-up of the Hainan Free Trade Port. The Hainan Free Trade Port EF account provides crucial financial support for customs clearance, essentially building a "highway for cross-border capital flows." In your opinion, what are its key advantages and prominent roles?
Xue Hongyan: The Hainan Free Trade Port EF account is a key infrastructure for financial opening-up, and its advantage lies in building an efficient, convenient, and risk-controllable closed loop for cross-border capital flows. From the perspective of mechanism design, the EF account establishes a new paradigm of capital management of "basic liberalization at the first line and limited penetration at the second line".
Specifically, within the "first line" (i.e., between Hainan and overseas), funds in the account can be freely transferred to overseas accounts, offshore accounts (OSA), and non-resident accounts (NRA) (subject to compliance requirements such as anti-money laundering); when conducting capital account transactions other than securities investment, no prior registration or filing is required, and there are no restrictions on foreign debt or cross-border financing quotas, thus granting enterprises the freedom to access offshore markets for fund allocation. Within the "second line" (i.e., between Hainan and other regions within China), a penetration limit is set—allowing two-way RMB transfers with domestic ordinary accounts under the same name within one time limit of owner's equity—and strict transaction background verification is implemented, thus constructing an effective risk isolation wall.
This design, through "electronic fence" technology, ensures that funds flow efficiently across borders while remaining within a monitorable and manageable scope. In practice, the advantages of EF accounts have translated into tangible economic benefits. On the one hand, its integrated RMB and foreign currency management mechanism allows companies to manage funds in multiple currencies within a single account, significantly reducing financial costs and exchange rate risks associated with multiple account openings and frequent currency exchange. On the other hand, data released by the People's Bank of China shows that as of the end of November 2025, 11 banks in Hainan had launched and opened 729 EF accounts, with a business volume equivalent to RMB 295 billion, and fund transfers between account holders and 80 countries and regions. This demonstrates that it has rapidly evolved from a design concept into a widely recognized "highway for funds," effectively supporting complex businesses such as new offshore international trade and cross-border supply chain financing, becoming an important financial tool for aggregating global resources.
Financial Times reporter: Hainan Island's full customs closure, zero tariffs on goods trade, and preferential policies for corporate and personal income tax, along with other special customs supervision zones, will attract global trade in goods and services, as well as international investment. This will inevitably generate substantial cross-border payments and capital flows, creating higher and broader demands for cross-border financial services. What new opportunities do you see for banks engaging in cross-border finance? How should banks position themselves?
Xue Hongyan: After the island is fully sealed off, the policy system of "zero tariffs, low tax rates, and simplified tax system" is profoundly reshaping Hainan's economic ecosystem and opening up a "new blue ocean" for cross-border finance for the banking industry.
On the one hand, the demand for basic cross-border settlement is showing a large-scale growth. The "zero tariff" policy for goods trade covers a large number of tariff lines, coupled with the tariff exemption policy for processing value-added products sold domestically, giving rise to new processing trade models that are either "two ends abroad" or "one end abroad," such as the industrial chain of "Southeast Asian raw materials—Hainan processing—inland market." This will directly drive the continuous expansion of cross-border payments and receipts in all aspects of production, logistics, and sales. Banks can leverage EF accounts to provide enterprises with efficient and low-cost cross-border settlement and exchange services, and can also embed themselves in supply chain scenarios to provide real-time trade finance support.
On the other hand, diversified cross-border investment and financing demands have been significantly unleashed. A preferential tax rate of 15% applies to both corporate income tax and individual income tax (limited to eligible enterprises, high-end talent, and urgently needed talent). Coupled with the deepening of the QFLP (Qualified Foreign Limited Partner) and QDLP (Qualified Domestic Limited Partner) pilot programs, this is attracting numerous investment institutions, high-net-worth individuals, and multinational corporations to establish entities in Hainan and conduct cross-border capital operations. This places higher demands on banks, requiring them to integrate resources both within and outside their groups to provide a comprehensive suite of solutions, ranging from cross-border project financing, structured trade finance, and cross-border M&A loans to overseas bond underwriting, global cash management, and cross-border wealth planning. Currently, some leading banks have built a five-tiered service system encompassing cross-border trade settlement, investment and financing, treasury management, asset management, and personal cross-border finance, committed to providing full-lifecycle services.
Dong Ximiao: In the face of the opportunity presented by the full island closure of Hainan, banks can make strategic moves in multiple ways.
First, we will deepen the application of EF accounts and improve the financial services ecosystem. For example, we will provide customized comprehensive EF account solutions to meet the differentiated needs of different types of enterprises (such as multinational corporations and SMEs). We will not only facilitate cross-border settlements, but also embed EF accounts into the entire chain of enterprise trade finance, hedging, and cash pooling management.
Second, we will focus on key industries and provide comprehensive financial solutions. Closely aligned with Hainan's four leading industries—tourism, modern services, high-tech industries, and tropical specialty high-efficiency agriculture—we will provide cross-border financial services across the entire industry chain. We will also pay attention to emerging productivity sectors such as technology companies and strategic emerging industries, leveraging their asset-light characteristics to innovate cross-border financing models based on intellectual property rights.
Third, leverage internal and external resources to maximize the synergistic advantages of the group. Banks with the necessary resources should strengthen collaboration among their investment banking, asset management, and financial markets departments, as well as between these departments and their domestic and overseas subsidiaries, to provide clients with integrated "commercial banking + investment banking" and "domestic + overseas" services. Furthermore, they should enhance external connections to expand the policy synergy between the Hainan Free Trade Port and the Guangdong-Hong Kong-Macao Greater Bay Area, as well as the Shanghai International Financial Center, providing high-quality financial services to enterprises operating across regions.
Financial Times reporter: The more open we become, the more we need to balance development and security. Achieving both "openness" and "control" in cross-border capital flows requires a solid security foundation. In your opinion, what are the main risks to be considered in cross-border capital flows? And how should regulators and banking institutions further mitigate these risks in the future?
Dong Ximiao: From a market perspective, the main risk is the impact of short-term capital flows. With the concentrated rollout of policies and increased openness, international "hot money" may flow in and out rapidly, impacting domestic asset prices and exchange rate stability. From a compliance perspective, the main risk is the compliance risks faced by enterprises and financial institutions. This includes behaviors such as enterprises fabricating trade backgrounds and illegally providing domestic guarantees for overseas loans. Enterprises "going global" may also face tax and operational risks in their fund management.
Xue Hongyan: The deepening of financial opening-up must be promoted in tandem with the improvement of risk prevention and control capabilities. Currently, cross-border capital flows require attention to two types of risks: first, compliance and crime risks, namely, the convenient environment of "opening up the first line" may breed money laundering, terrorist financing, illegal transfer of funds by fabricating trade backgrounds, tax evasion and other behaviors; second, macroeconomic and market risks, namely, in a complex international environment, sudden changes in the monetary policies of major economies, escalation of geopolitical conflicts or violent fluctuations in global markets may trigger large-scale inflows and outflows of short-term speculative capital, impacting regional financial stability.
At the regulatory level, a sound monitoring and early warning indicator system needs to be established at the macro level to continuously analyze the total amount, structure, and direction of cross-border capital flows, and to proactively assess and address potential systemic risks. At the micro level, relying on the "electronic fence" formed by the EF account system, and leveraging technologies such as big data and artificial intelligence, penetrating monitoring of fund transfers is necessary to strengthen the verification of the authenticity of transaction backgrounds and achieve accurate identification and rapid response to abnormal transactions. Currently, the cross-border capital flow monitoring and early warning mechanism has been fully implemented.
At the institutional level, banks bear a heavy responsibility as the first line of defense against risk. First, they must adhere to the principle of substance over form, strictly implement Know Your Customer (KYC) and transaction due diligence to ensure a thorough understanding of customers and their business operations, thus curbing fraudulent transactions at the source. Second, they should establish internal control and risk management mechanisms commensurate with the complexity and openness of their business, enhancing their ability to independently identify, assess, and control risks in cross-border business. Finally, banks need to proactively cooperate with regulators, utilize technology to improve the intelligence level of compliance monitoring, and strengthen international information exchange and cooperation in areas such as anti-money laundering and counter-terrorism financing to jointly build a safer and more robust cross-border financial ecosystem.
Dong Ximiao: Banks and other financial institutions must adhere to the bottom line of risk management and build a comprehensive risk management system. They must embed the principles of "know your customer, know your business, and conduct due diligence" into their business processes, utilize big data to build cross-border capital flow monitoring models, and provide real-time warnings for abnormal transactions to ensure that business operations are both "open" and "controlled." They should fully utilize the "open at the first line, controlled at the second line" system design of EF accounts, facilitating free transfers between enterprises "across the first line" and overseas, while strictly managing "cross-the-second line" capital transfers prudently according to the principle of "negative list + quota management" to ensure that the facilitation policies are not abused.
