In our China Update of October 2011, we reported that China officially allowed foreign investors holding RMB deposits outside of China to use those offshore RMB funds for foreign direct investments ("FDIs") in China. We also reported that the People’s Bank of China (“PBOC”) issued an announcement regarding the settlement of the offshore RMB funds transferred by foreign investors into China for FDI purpose. On 14 June 2012 PBOC issued a circular (the “Circular”), providing banks with more detailed guidelines on dealing with the settlement of offshore RMB funds. The most important clarifications the Circular provides are highlighted below.
- A foreign investor or a Chinese company invested in by a foreign investor ("a foreign-invested company") may only open one RMB account for one specific special purpose. For example, a foreign investor may only open one RMB account for paying up-front costs before the establishment of a foreign-invested company.
- A foreign-invested company may take an RMB loan from abroad only if the full amount of its registered share capital has been duly contributed. A real estate company is not allowed to take an RMB loan from abroad at all.
- The maximum amount of RMB loans that a foreign-invested company may receive from abroad is the balance between the company's registered share capital and the government-approved total amount of investments to be made by the company.
- A foreign-invested company should use the RMB funds contributed by its foreign shareholders or borrowed from abroad within its approved business scope. It may not use the RMB funds for investments in negotiable securities and financial derivatives, entrusted loans, purchase of financing products and non-self-used real estate. A foreign-invested company is allowed to use such RMB funds to repay domestic or foreign debts.
- Foreign-invested companies, except for special holding companies approved by the competent authorities, are not allowed to use the RMB funds they obtained overseas for equity investment in China.