Published On: Wed, Aug 24th, 2011

China Plans to Allow Cross-Border Direct Investment in RMB

China’s Ministry of Commerce has said it intends to allow cross-border direct investment into the country in the Chinese currency renminbi (RMB), the country’s latest effort to diversify investment options of the yuan and facilitate its internationalization process.

Foreign investors will be able to make direct investments in China with RMB obtained legally from overseas, according to a draft released by the ministry, which is currently soliciting public feedback on the new rules.

The ministry said in a notice on its website the move was aimed at “further promoting cross-border trade and investment in RMB.”

The ministry said RMB funds obtained through cross-border trade settlement and overseas issuance of RMB-denominated bonds or stocks are eligible for such direct investments.

RMB profits gained by foreign-invested companies in China and then remitted out of the country are also eligible.

However, those overseas RMB funds can not be used to invest in negotiable securities and financial derivatives in China directly or indirectly, nor to provide entrusted loans in the country or repay domestic or overseas loans, said the ministry.

The move follows remarks by Vice Premier Li Keqiang last week that support will be given to Hong Kong enterprises making direct investment on the mainland in RMB.

The RMB Qualified Foreign Institutional Investors (RQFIIs) will be allowed to invest in mainland securities markets with an initial size of 20 billion yuan, Li announced during a visit to Hong Kong.

Analysts believe those pledges will speed up circulation of RMB funds both into and out of China and help the yuan become a more international currency.

To encourage the internationalization of RMB, the Chinese government allowed trials of cross-border trade settlement in RMB in July 2009 and expanded the project to 20 provinces, municipalities and autonomous regions last year

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