Latest development of the internationalisation of Renminbi (RMB)
In December 2013, the People's Bank of China (PBOC) promulgated the Opinions on Financial Support to China (Shanghai) Pilot Free Trade Zone (the PBOC SFTZ Opinions). A summary of the key information was included in our January/February 2014 Risk Note.
Further to the reform plans contemplated in the PBOC SFTZ Opinions, in February 2014, the PBOC Shanghai headquarters promulgated the Circular on Supporting the Expansion of Cross- Border Use of Renminbi for China (Shanghai) Pilot Free Trade Zone (the SFTZ RMB Expansion Circular), which sets out in principle that any policies and measures issued at the state level to encourage or support the expansion of cross-border use of Renminbi shall be applicable to the SFTZ. Key measures contemplated in the SFTZ RMB Expansion Circular include:
- Individuals employed or operating a business in the SFTZ may open their own bank settlement accounts to conduct cross-border Renminbi settlements under current account items.
- Enterprises resident in the SFTZ may centralise/consolidate their cross-border payments/receipts under the current account items with their offshore "associated entities" (which can be an affiliate of the relevant enterprise within the group or an entity outside the company group which is a frequent supplier or a close trading partner of the relevant enterprise) and, for that purpose, the group headquarters shall designate a group member registered and operating in the SFTZ which shall then open a special Renminbi deposit account to be used for the abovementioned centralised payments/receipts and shall enter into an agreement with the relevant parties participating in the centralised payment/receipt arrangements.
Financial institutions and enterprises resident in the SFTZ may borrow mid- to long-term foreign debts (ie loans with a tenor exceeding one year) in Renminbi from an offshore lender, subject to a limit imposed by PBOC which is determined based on a formula (with reference to the paid-in capital of the relevant borrower and certain macro prudential regulatory ratio) set out by PBOC.
Enterprises resident in the SFTZ may conduct intra-group crossborder Renminbi cash pooling businesses and, for that purpose, the group headquarters shall designate a group member registered and operating in the SFTZ which shall then open a special RMB deposit account to be used for the abovementioned cash pooling business and shall enter into an agreement with the relevant affiliates participating in the centralised payment/receipt arrangements. The SFTZ RMB Expansion Circular also contemplates that financial instruments and precious metals denominated and settled in Renminbi on the Foreign Exchange Trading System and the Shanghai Gold Exchange will be available to investors in the SFTZ and outside China.