China, a country that has long been known to have the world’s most rigorous control over cross-border currency movements, has slowly embarked on a journey towards the internationalization of its own currency. After its first attempt in July 2009, when it introduced a pilot scheme to allow Renminbi (“RMB”) to settle cross-border trades, the offshore RMB market has exploded. Particularly, RMB deposits in Hong Kong ballooned to RMB553.6 billion yuan at the end of June 2011, according to the Hong Kong Monetary Authority. In response to calls for a direct investment channel to utilize the increasingly enlarged pool of RMB currency parked offshore to benefit China’s domestic economy, China’s Ministry of Commerce (“MOFCOM”), the People’s Bank of China (“PBoC”), and the State Administration of Foreign Exchange (“SAFE”) issued a series of circulars in 2010 and the first half of 2011 to allow offshore RMB funds to be repatriated back to mainland China for foreign direct investment (“FDI”) purposes.
A recent visit of Vice Premier Li Keqiang to the Hong Kong SAR ushered two regulations on offshore RMB FDI, namely the Circular concerning Certain Issues on Direct Investment involving Cross-Border RMB by the MOFCOM (“MOFCOM Circular”) on 12 October 2011 and the Administrative Measures on RMB Settlement in Foreign Direct Investment by the PBoC (“PBoC Measures”) on 13 October 2011. These two regulations took another essential step towards the internationalization of RMB. The MOFCOM Circular further standardizes the offshore RMB FDI process, whereas the PBoC Measures greatly simplifies the approval process for repatriating RMB proceeds raised offshore into the PRC. Theoretically, the groundwork for new investment channels has been laid for raising and investing offshore RMB funds. This alert focuses on three aspects of the new regulations that are particular relevant to this consideration: (1) approval for repatriation of offshore RMB funds into the PRC; (2) approval procedure for FDI of offshore RMB funds; and (3) the FDI investment scope.
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