Author: Zhang Feng
After Hainan's customs closure operation, the Renminbi (RMB) has not changed its fundamental property as domestic RMB, but within the EF account system, it has been endowed with highly similar offshore RMB convenience functions. Therefore, it can be summarized as "overall onshore, account-type offshore."
1. The entire region remains domestic Renminbi (CNY)
It is essential to clarify a basic positioning: Hainan Free Trade Port is a special area under the supervision of Chinese customs, not a sovereign external area that is "outside the domestic customs." It is still within the jurisdiction of China's customs and monetary sovereignty.
Therefore, the Renminbi circulating and stored throughout Hainan Island has the same legal nature as the Renminbi in Shanghai, Beijing, and other places, all belonging to domestic Renminbi (CNY), uniformly regulated by the People's Bank of China, implementing the same monetary policy and clearing rules.
For ordinary residents and businesses in Hainan, the ordinary savings accounts or settlement accounts opened at banks contain Renminbi that is no different from funds in mainland accounts. Daily operations such as deposits, withdrawals, transfers, and consumption fully comply with mainland rules and are not affected by the customs closure operation. The customs closure changes the management rules for cross-border and "second-line" funds, not the legal status of the Renminbi itself.
2. The "quasi-offshore" characteristics of Renminbi in EF accounts
However, the EF account (multi-functional free trade account) in Hainan Free Trade Port is the core tool for financial opening, providing an integrated and freely convertible banking account system for entities within the region and foreign institutions. Through the EF account, enterprises can efficiently manage cross-border receipts and payments, reduce exchange costs, and engage in cross-border financing, fund pooling, and other businesses, strongly supporting the liberalization and facilitation of trade and investment in the free trade port.
The EF account opens up cross-border capital flow channels, allowing funds to conveniently enter and exit through the "first line" and have limited penetration through the "second line," significantly enhancing trade and investment facilitation. The EF account system in Hainan Free Trade Port has implemented segregated accounting through "electronic fencing" technology. This means that the Renminbi stored in the EF account, while legally classified as CNY, functionally enjoys conveniences similar to offshore Renminbi (CNH).
For EFT accounts (foreign institutions): The Renminbi within can be freely exchanged with foreign currencies, processed based on commercial instructions, with no quota limits, fully serving international trade settlement and investment needs.
For EFP accounts (qualified individuals): After meeting certain conditions (such as residing, working, or studying in Hainan for over a year and having legal income proof), individuals can enjoy exchange conveniences for cross-border investments and purchasing financial products within the quota.
For EFE accounts (enterprises within the free trade port): When conducting trade and direct investment with foreign countries on the "first line," the exchange of Renminbi and foreign currencies is also highly free and convenient.
3. The essential differences between EF account Renminbi and traditional offshore Renminbi (CNH)
Equating the Renminbi in Hainan EF accounts with traditional offshore Renminbi (such as CNH in Hong Kong) is a misunderstanding. There are fundamental differences between the two.
Different regulatory sovereignty: CNH exists in the offshore market outside China's sovereign jurisdiction, primarily regulated by financial regulatory agencies in places like Hong Kong; whereas the Renminbi in Hainan EF accounts is under the direct supervision of the People's Bank of China within the "electronic fencing," representing "offshore facilitation under domestic regulation."
Different exchange rate formation mechanisms: The CNH exchange rate is determined by supply and demand in the offshore market, often differing from the onshore CNY exchange rate (exchange rate difference); the Renminbi in Hainan EF accounts can use either the CNY or CNH exchange rate, giving enterprises the choice, effectively smoothing potential arbitrage opportunities.
Different connectivity with the mainland market: CNH funds entering the mainland are strictly regulated (such as channel quota limits); whereas there exists a compliant, transparent, and controllable "second-line" penetration channel (as previously mentioned, the 1x owner's equity quota) between Hainan EF accounts and mainland ordinary accounts, maintaining an organic connection with the mainland economy.
Therefore, Hainan's Renminbi model is an innovative "domestic-offshore" arrangement that absorbs the conveniences of the offshore market while firmly rooted in the regulatory framework of the onshore market, representing a more controllable risk exploration of openness.
4. Core differences between EF accounts and ordinary accounts
Comparison Dimensions
EF Account (Free Trade Account)
Ordinary Bank Account (Hainan/Mainland)
Account Positioning
Main channel for cross-border capital flow in the free trade port, segregated accounting, electronic fencing management, possessing "domestic-offshore" functions.
Domestic conventional capital account for daily receipts and payments.
Account Opening Entities
Registered enterprises in Hainan Free Trade Port (EFE), qualified individuals (EFP), foreign institutions (EFT), banks within the region (EFB).
Domestic individuals or enterprises (no special regional restrictions).
Cross-border Settlement Rules (First Line)
Free transfer with foreign accounts, no prior approval, multi-currency settlement.
Must comply with foreign exchange management regulations, submit authenticity materials, and capital items require approval/filing.
Cross Second Line Settlement Rules
Transfer of Renminbi with domestic ordinary accounts, subject to quota management (e.g., 1x owner's equity for enterprises) and negative list restrictions.
Free transfer of Renminbi with other domestic accounts, no quota limits.
Renminbi to Foreign Currency
Enterprises/foreign institutions: Free exchange, no quota limits.
Individuals (meeting conditions): Convenient exchange within the quota.
Individuals: Annual foreign exchange quota of $50,000 equivalent.
Enterprises: Actual demand exchange under trade items, capital items require approval.
Applicable Scenarios
Cross-border trade, investment and financing, offshore finance, bulk commodity trading, cross-border e-commerce, etc.
Daily consumption, domestic trade, domestic investment, ordinary transfers.
Regulatory Model
Primarily post-event verification, relying on monitoring platforms for full-process tracking, macro-prudential + negative list management.
Pre-approval (for cross-border business) + daily supervision, following conventional foreign exchange and Renminbi management regulations.
Rates and Efficiency
Lower fees, fast fund arrival (often real-time), can freely choose onshore (CNY) or offshore (CNH) exchange rates.
Relatively higher fees, slower fund arrival (1-3 working days), only using onshore (CNY) exchange rates.
For enterprises, EF account opening requires ensuring the registered location is in Hainan Free Trade Port and that actual business activities align with the free trade port's industrial policies, strictly prohibiting shell companies from opening accounts for arbitrage. Second-line fund transfers must strictly adhere to the negative list, and EF account funds must not illegally flow into restricted areas such as real estate or virtual currencies.
For individuals, EFP account opening requires providing proof of residence, social security payment records, and other materials, strictly prohibiting the forgery of materials for illegal account opening. Personal cross-border exchange funds must be used for compliant investments and not for illegal activities such as speculation in overseas securities or cross-border gambling.
In summary, EF account funds must genuinely match the business background, and using EF accounts for money laundering, tax evasion, or illegal currency exchange operations is strictly prohibited. Banks and regulatory authorities will conduct thorough investigations of abnormal transactions.
5. The path to promoting the free exchange of Renminbi: phased, gradient, and risk-controlled
Regarding the question of "whether foreign currencies can be freely exchanged," the answer is not simply "yes" or "no," but should be understood as: In Hainan, a layered and gradual currency exchange facilitation system centered on EF accounts is steadily being constructed, with the ultimate goal of achieving the convertibility of Renminbi capital items, while maintaining risk control throughout the process.
(1) Current account differentiated exchange facilitation
Currently, Hainan's Renminbi exchange policy exhibits a distinct "account differentiation" characteristic, which is an intuitive reflection of the "phased" advancement:
Within the EF account system: Highly facilitated free exchange has been achieved. Enterprises and foreign institutions can freely exchange Renminbi and foreign currencies at market rates when conducting compliant cross-border trade, direct investment, etc., with no additional quota limits, and the process is simple. Individuals, after meeting specific conditions, also enjoy cross-border investment exchange conveniences superior to ordinary mainland accounts in their EFP accounts.
Within ordinary bank accounts: The Renminbi exchange policy for foreign currencies is completely consistent with the mainland. Individuals are still subject to the annual foreign exchange quota of $50,000 equivalent; enterprises must adhere to the "actual demand principle," and capital item exchanges still require approval. This ensures that in the initial phase of customs closure, irrational or speculative large-scale foreign exchange demands from individuals do not impact the stability of the national foreign exchange market.
(2) A clear "three-step" strategic plan for the future
According to the "Overall Plan for the Construction of Hainan Free Trade Port," the promotion of Renminbi's free exchange is a systematic long-term plan:
Phase One (Initial Phase of Customs Closure Operation): Focus on serving trade and investment facilitation. Fully achieve the free exchange of settlement under goods trade and service trade, significantly simplify the exchange process for cross-border direct investment. The operation of the EF account has basically achieved the goals of this phase.
Phase Two (3-5 years after customs closure): Gradually expand capital item opening. Under the premise of controllable risks, pilot the promotion of exchange facilitation for cross-border securities investment (such as an upgraded version of the "Cross-Border Wealth Management Connect"), and more flexible cross-border financing. At the same time, it may cautiously relax the "second-line" penetration quotas between EF accounts and mainland accounts to enhance the linkage of internal and external circulation.
Phase Three (Mature Operation Period of the Free Trade Port): The ultimate goal is to basically achieve convertibility of Renminbi capital items. Form a financial ecosystem where the flow of funds between EF accounts and domestic accounts is more flexible, and the domestic and foreign markets are deeply integrated, making Hainan an important window and testing ground for the internationalization of Renminbi.
(3) A stable and orderly guarantee mechanism for the opening process
Such a significant degree of openness is not without constraints. To ensure the smooth progress of exchange liberalization, a comprehensive supporting guarantee mechanism has been established simultaneously:
Macro-prudential management: The central bank can guide and control the scale and pace of cross-border capital flows through tools such as adjusting macro-prudential adjustment parameters for all-inclusive cross-border financing.
Negative list management: Clearly list prohibited areas for exchange, such as money laundering, terrorist financing, and purely speculative short-term capital flows, ensuring that financial opening is not used for illegal activities.
Technological monitoring and penetrating supervision: The cross-border capital flow monitoring platform plays an "eagle eye" role, conducting real-time monitoring and early warning of abnormal transactions and large capital flows, achieving precise prevention and control.
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