On 14 October 2011, the People's Bank of China (PBOC) issued the Measures on the Administration of RMB Settlement Business relating to Foreign Direct Investment with immediate effect.
The Measures lay down operating procedures for PRC banks to handle Renminbi (RMB) settlement relating to (i) inbound foreign direct investment (FDI) and (ii) borrowing by Foreign Investment Enterprises (FIE) of offshore RMB loans.
Prior to the promulgation of the Measures, PBOC approval on a case-by-case basis was required for any "capital account" (i.e. FDI and cross-border borrowing) transfer in RMB to China. Under the new regime, PRC commercial banks are authorised by PBOC to handle RMB settlement of such movement of RMB funds into China and PBOC's prior approval is no longer required.
The Measures also introduce procedures for the set up and administration of specific types of RMB bank settlement accounts for the purpose of receipt of the RMB inflows of funds from FDI and borrowing of foreign debts. Such procedures are similar to those applicable to bank settlement of foreign currencies inflows to China.
In respect of cross-border loans to FIEs, the Measures require that all borrowings, whether denominated in RMB or foreign currency, by a FIE from its foreign shareholder, any of its intra-group foreign affiliates and foreign financial institutions should be aggregated in determining the total amount of the FIE's foreign debts.
The Measures represent significant relaxation of Chinese regulatory control on offshore RMB inflows into China , thus promoting the use of offshore RMB funds in China. The move will be welcomed by foreign investors and foreign banks alike.