Expanding the use of Cross-Border RMB: new rules and new route Go back »
2011-12-28 | Nanjing
Following the trend of rapid promotion of using RMB in international trade, rising proceeds from existing FDI projects as well as offshore issuance of RMB-denominated bonds or stocks, the PRC Ministry of Commerce (“MOFCOM”) and People’s Bank of China (“PBOC”) issued regulations relating to cross-border RMB FDI transactions, respectively from the regulatory and banking settlement perspectives.
The Ministry of Commerce (MOFCOM) has finalized rules permitting foreign investors to use RMB funds legitimately obtained outside China to make direct investments inside the country, with some restrictions. MOFCOM, the primary regulator of foreign-direct investment (FDI) matters in China, released the Circular on Issues Concerning Cross-Border RMB Direct Investment (Final RMB Investment Circular) on October 13, 2011. The new rules took effect immediately, on the same day as the Administrative Measures on Renminbi Settlement for Foreign Direct Investment, which were enacted by the People's Bank of China (PBOC).
1. Sources of Overseas RMB
According to the MOFCOM Notice, overseas RMB can be described as:
1) RMB that a foreign investor has obtained through cross-border trade settlement in RMB and that lawfully obtained in China as RMB profit or as the result of an equity transfer, capital reduction, liquidation or early recovery of investment and remitted abroad; and
2) RMB obtained abroad by a foreign investor through legal means, including but not limited to that obtained through means such as RMB-denominated bonds issued abroad and RMB-denominated shares issued abroad.
2. Role of MOFCOM
MOFCOM (with the lower level competent authorities) examine and approve cross-border direct investments in RMB in accordance with current relevant provisions. The application for approval of central level MOFCOM must be made after its provincial level counterpart has reviewed the application, which is applicable to transactions referring to 1) the amount of the capital contribution in RMB is RMB 300 million or more; 2)it is in financing security, lease financing, micro-credit or auctioning industry or other such industry; 3)the companies to be invested are foreign invested investment companies, foreign invested venture capital or equity investment enterprises; or 4) the investment will be made into industries subject to government macro-control, such as cement, steel, electrolytic aluminum and ship building. However, appropriate controls remains that cross-border direct investment in RMB may not be directly or indirectly used in China to invest in negotiable securities or financial derivatives, unless it carries out the relevant examination and approval procedures with the Ministry of Commerce according to Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors.
3. Role of PBOC
“PBOC Measures” features in its detailed measures for the onshore settlement banks to deal with RMB settlement services.
The RMB Settlement Measures, issued on October 13, 2011, provide guidance to banks processing RMB settlements for foreign direct investment (FDI).
Foreign-invested enterprises are directed to engage a licensed accounting firm to verify the RMB capital contribution and RMB capital for an equity purchase. The accounting firm may issue a capital verification report after conducting an inquiry with the bank at which the RMB account is opened.
Generally speaking, for example, a dedicated domestic RMB settlement account is required to be opened for deposit of initial capital costs for Greenfield FIE, a dedicated RMB acquisition deposit account for deposit of the RMB-denominated acquisition funds remitted by the foreign investors.
Based on the clear and specific stipulations on the dedicated settlement account, it could be deemed, indirectly, that the process of FDI would be more transparent and certain to the investors.
Conclusion
Those RMB Investment rules clearly reflects the new Chinese government's desire to encourage foreign investors to invest offshore RMB in China supported from authorities in various branches of the government.
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