Overview

The People's Bank of China released a circular on 21 June 2011 clarifying relevant issues regarding cross-border RMB business. The circular strengthens supervision on cross-border RMB settlement and for the first time provides for RMB settlement of foreign direct investment in China.

Repatriation of RMB into mainland China by way of FDI first arose in the second half of 2010, subject to approval of PBOC on a case by case basis but without any formal regulations. The circular is the first formal regulation of RMB settlement of FDI in China. It clearly states that applications for FDI with RMB in sectors which are restricted by national policy will not be accepted at the current stage. For RMB FDI in the non-financial industries by way of setting up a new enterprise, acquiring a domestic enterprise (excluding acquisition by a foreign investor that is controlled by a PRC person or entity), equity transfer, capital injection, shareholder loans, the circular provides procedures on how to apply for approval.

In addition, the circular makes a significant step in promoting cross-border flows of RMB. It is expected that more multi-national companies will issue RMB bonds in Hong Kong and repatriate the RMB proceeds into China by FDI.

This briefing also clarifies restrictions on cross-border RMB business and outlines new procedures for the management of RMB debt.