China may allow FDI in RMB in Sept.

0 Comment(s)Print E-mail Xinhua, August 24, 2011
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China's Ministry of Commerce said Wednesday it will try to formally green light foreign direct investment (FDI) in the Chinese currency renminbi (RMB), or the yuan, in September.

"The ministry has released a draft regulation on cross-border direct investment in RMB and we'll try to put it into effect in September," ministry spokesman Shen Danyang told a press conference here.

The ministry posted the draft on its website on Monday night to solicit public feedback until Aug. 31.

If implemented, the rules will expand channels for overseas-acquired RMB funds to flow back into the country.

The move is expected to give a push to the RMB's internationalization drive. Currently, the Chinese currency can not flow into and out of the country freely under capital accounts, which is viewed as an obstacle for internationalizing the yuan.

Foreign investors will be able to make direct investments in China with RMB legally obtained overseas, according to the ministry's draft.

The draft states that FDI in RMB are prohibited in negotiable securities and financial derivatives. Foreign investors can not use overseas-obtained yuan to provide entrusted loans or to repay domestic or overseas loans.

Shen said the new policy will not have a significant impact on the amount of China's foreign exchange reserves.

More FDI in the yuan instead of foreign currencies may lead to smaller increments of foreign exchange reserves, but the permission of FDI in RMB may spur demand for the yuan and bring in more foreign exchanges, he said.

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

China announced on Tuesday that all parts of the country are able to use its national currency in cross-border trade settlements in a another bid to encourage the internationalization of RMB.

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