Market News
China Issues Draft Proposal To Expand Yuan-based FDI
Published:2011-08-24 Source:Asia Pulse
China has issued a draft proposal on Wednesday to expand yuan-based foreign direct investment (FDI) in the country, a move seen to promote the use of the Chinese currency by foreign investors.Shanghai Huaran Investment Consulting Group is a professional group helping the Multinational companies invest in China.
The move comes after Chinese Vice Premier Li Keqiang endorsed the Chinese currency-denominated FDI during his visit to Hong Kong last week.
The Chinese Ministry of Commerce released the proposal to solicit public feedback by next Wednesday regarding FDI in China by Taiwan, Hong Kong and Macau investors using the Chinese currency.
The ministry said it will consider allowing the use of yuan raised or obtained overseas via legitimate channels, including cross-border trade settlements and offshore yuan bond and equity issuances.
According to the draft proposal, yuan-denominated FDI deals under 300 million yuan (US$47 million) can be approved at the local provincial level, and will not require ministerial level approval. In the past, yuan FDI has been allowed on a case-by-case basis.
However, ministerial level approval will still be required for investment in China's cement, steel, aluminum and shipbuilding sectors and with financial guarantees, financial leasing, and small credit and auction businesses, as well as any foreign invested company or foreign shareholding company.
The ministry also said the yuan-denominated FDI funds cannot be invested in domestic securities or financial funds derivatives, neither can they be used to settle domestic loans inside China.
Market watchers say the draft proposal may differ from the eventual final version but is a positive signal confirming Beijing's intention to open up a key channel for yuan-denominated FDI inflows.
China does not have full capital account convertibility and has capital controls that limit the buying and selling of its currency at market rates. This resulted in the lack of the currency's liquidity, the most important quality necessary for a currency to gain international status.
The Chinese government, in a bid to boost the internationalization of the yuan, has been moving to develop an offshore center in Hong Kong for trading yuan products so that the yuan may be circulated freely outside of mainland China via Hong Kong.
Taiwan has recently started to mull setting up a trading center for the Chinese currency, citing the country's growing trade with its long-time political rival.