Chinese authorities have expanded the scope and variety of cross-border transactions that use China's currency RMB. As of 1 January 2014, it is easier for foreign investors in China to predict if they need approval for these types of investment.
Chinese authorities have made significant efforts over the last few years to expand the scope and variety of cross-border transactions that use the Renminbi (RMB). The RMB currently comes in two basic forms:
- the onshore RMB (also referred to as CNY) is used in China, is not freely tradable, and is controlled by China's central bank.
- the offshore RMB (also referred to as CNH) was introduced in 2010 to serve as an opportunity for foreign parties to use RMB, and is freely tradable through an account outside China (mainly in Hong Kong, but in more and more other places as well).
In 2011, Chinese authorities allowed the use of offshore RMBs for the making of investments in China by foreign investors, subject to the supervision of the Ministry of Commerce (MOFCOM), the State Administration of Foreign Exchange (SAFE) and the People's Bank of China (PBOC).
As per 1 January 2014, these authorities have disseminated new circulars to further relax their supervisory power over the use of offshore RMBs for investments in China. For non-Chinese investors, the most important changes are the following:
- In addition to obtaining local MOFCOM approval, investors previously needed central MOFCOM approval for investments of more than RMB 300 million and for investments in specific sectors. This requirement has been removed.
- Previously, only a few categories of offshore RMBs were eligible for investment in China. Now, any legally gained offshore RMBs may be used for investment in China, regardless of whether obtained through cross-border trade, investment proceeds, currency exchange, issuance of RMB shares or bonds or any other means.
- MOFCOM approval is no longer required for a change of currency (from foreign currency into offshore RMBs) used for investments in China.
As a result of these changes, it will be easier for foreign investors to predict the outcome of the approval process for their investments in China.
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