Foreign companies that hold RMB deposits outside of China can
now use those offshore RMB amounts for foreign direct investments
("FDIs") into China. This new
development follows the trend of the gradual internationalisation
of the RMB. It will also further promote the development of the
offshore RMB bond and financing markets, especially in Hong
Use of offshore RMB in FDI transactions
The internationalisation of the RMB can result in foreign
companies holding surplus offshore RMB deposits. Although foreign
direct investment in RMB was not entirely prohibited previously, it
required reviews and approvals from MOFCOM and PBOC (both at the
central government level), which was generally considered lengthy
and unpredictable. The Chinese government has recently implemented
new regulations to improve this process.
Under a circular of the Ministry of Commerce
("MOFCOM") dated 12 October 2011 (the
"Circular") and a further regulation by
the PBOC dated 13 October 2011 (the
"Regulation") non-financial foreign
investors can now transfer RMB funds back into China that they have
legally obtained offshore.
According to the Circular "legally obtained offshore"
includes RMB obtained offshore as a result of:
cross-border trade settlements
dividend distributions, disposal of equity interests, reduction
of registered capital or liquidation of a foreign invested
RMB funds raised lawfully outside of China, including issuances
of offshore RMB bonds or other RMB denominated securities.
There are, however, some limitations to the use of offshore RMB
for FDIs. According to the Circular, FDIs in RMB are
prohibited in negotiable securities and financial derivatives.
Also, foreign investors cannot use overseas-obtained RMB to provide
entrusted loans or to repay domestic or overseas loans. The
prohibition on securities trading, however, does not apply to
strategic investments by foreign investors in Chinese listed
companies through participating in private placements and equity
transfers by agreement.
FDIs in RMB are now subject to the same approvals as FDIs in
foreign currencies, such as US dollars. In addition, the same
ownership restrictions for certain industries apply, as does the
national security and merger review (see below). As a result the
same distinction between central and local MOFCOM will apply for
FDIs in RMB as for other investments. According to the Circular,
Central MOFCOM approval is therefore required if the
equal or exceed RMB300 million
are made in certain financing industry sectors, including
target companies engaged in providing guarantees, financial
leasing, credit loans or auctions
involve investments in foreign invested companies, foreign
invested venture capital enterprises, or foreign invested equity
involve investments in any sector subject to national
macro-control policies, such as cement, iron and steel,
electrolytic aluminum and shipbuilding.
According to the PBOC Notice, PBOC approval is no longer
required for FDIs in RMB. Instead, the PBOC requires FIEs with RMB
investments to be registered with its local PBOC branch.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On the 9 September 2016 the MFSA issued feedback to its consultation of the 1 April 2016 in relation to intra-group loans.
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