On June 14, 2012, the People's Bank of China (the
"PBOC") published the Circular on Clarifying the
Operational Rules of RMB Account Settlement for Foreign Direct
Investment (Yin Fa  No. 165) (the "Circular"). The
aim of the Circular is to regulate and provide local counterparts
of the PBOC and commercial banks with detailed guidelines on their
account settlement procedures for the RMB equity investment of
foreign investors in China.
1. The Circular sets out the requirements for opening various RMB
accounts for both the banks and the account holders where foreign
direct investment or acquisition of Chinese companies will be made
in RMB by a foreign investor. For example:
a) A foreign investor is only allowed to open one RMB upfront
expense account before the establishment of a foreign invested
enterprise (the "FIE"). Such account shall be filed with
the RMB Cross-border Collection and Payment Information
Administration System of the PBOC (the "RMB Information
System") by the bank. However, before opening the account, the
bank is obliged to check the RMB Information System as to whether
an investor has already opened a RMB upfront expense account.
b) For each M&A project in which a Chinese shareholder sells
its shares to a foreign investor, the Chinese seller can only open
one specific account to receive the RMB purchase amount from the
foreign buyer on the basis of the approval letter issued by the
competent examination and approval authority regarding the
2. Apart from detailed requirements on opening RMB accounts, the
Circular also provides rules regarding taking out RMB loans from
abroad, use of RMB funds in the capital account and foreign debt
a) An FIE can only take out a RMB loan from abroad if its
registered capital has been duly contributed in accordance with the
approved contribution schedule. However, a foreign invested real
estate enterprise is not allowed to take out any RMB loan from
abroad. Both RMB and foreign exchange loans from abroad are subject
to the foreign debt quota of the FIE, i.e. the balance between its
registered capital and total amount of investment. If such quota is
denominated in foreign currency, the applicable exchange rate
between RMB and the concerned foreign currency shall be the
intermediate rate published by the PBOC on the date on which the
RMB loan contract becomes effective.
b) The RMB funds in the capital account and the foreign debt
account of an FIE can only be used for activities within its
approved business scope, but cannot be used for investment on
negotiable securities and financial derivatives, entrustment loans,
purchase of financing products and non-self used real estate.
Except for foreign invested holding companies, the RMB funds in
question cannot be used for equity investment in China
c) However, the RMB funds in the capital account and the foreign
debt account of an FIE can be used for repayment of its loans from
domestic and foreign lenders.
The Circular sheds new light on the rules regarding opening
various RMB accounts for the purpose of RMB equity investment by
foreign investors in China. The Circular also encourages the local
counterparts of the PBOC in China and the commercial banks in China
to report problems they have encountered in the course of
implementing the Circular for further improvement of the relevant
provisions by the PBOC in the future.
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