China has launched an RMB FDI pilot program which allows foreign companies to invest in China using the Chinese Yuan (RMB).
The People’s Bank of China (PBOC), in a statement issued after the release of their new rules on foreign direct investment (FDI), said that permits to make direct investment in China with a settlement in Yuan would be made available to foreign investors. The PBOC has also launched a country-wide program that allows the use of the Yuan to settle cross-border trade. The rules have not broadened wide enough to allow using offshore Yuan to invest in mainland stocks or bonds or to repay loans.
The Ministry of Commerce (MOFCOM) thereafter released draft guidelines regarding the use of Yuan to make acquisitions by foreign entities. Within the details, which include application procedures, investments which top RMB 300 million must be submitted to MOFCOM.
Amidst China’s ambition to internationalize the Yuan, the programs open more channels for the Yuan to reach overseas markets and increase the investment options for Yuan-denominated funds in Hong Kong. There are still barriers, like high cost, to raising Yuan capital abroad and certain investors may be subject to restrictions.
Reports in Xinhua and China Daily stated, “Trade settled in the currency reached 506.3 billion Yuan in 2010, accounting for 5.7 percent of China’s total foreign trade, according to the central bank.” and “HSBC Holdings PLC forecast in a report that more than half of China’s trade, or about $2 trillion, will be settled in Yuan by 2012.”