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China to allow FDI in Yuan.

BritCham / CBBC
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In a step towards internationalizing the Yuan, the Chinese Government has established a rule to allow Foreign Direct Investment (FDI) in the currency.

According to a statement issued by the People’s Bank of China (PBOC), by expanding cross border use of the Yuan, the government hopes to promote trade and investment and support the development of the Yuan market in Hong Kong, as well as allow more ways for offshore Chinese currency to flow back into the mainland. Companies will have more ways to settle their investments in china in different currencies and avert risks brought about by exchange rate fluctuations.

Processes for financial services will also be made easier as qualified foreign investors can directly apply for settlements through the program with banks. The Ministry of Commerce (MOC) has defined the application procedures for FDI in Yuan, and stated that projects of more than 300 million (47.02 million USD) must be approved by the MOC before investors start businesses in finance guarantees, foreign investment companies and macro-controlled industries. 

According to the PBOC, 1.05 trillion Yuan worth of cross-border trade had been settled in Yuan from July 2009 to April.

Shen Danyang, MOC spokesman, said the new rule will not impact the foreign exchange reserve with sharp amount changes, but open capital projects may generate risks of hot money. Therefore, the PBOC said it will establish a system to share and manage information with authorities and enhance supervision in order to highlight the responsibilities of banks to prevent risks.

Source: Xinhua


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