China Targets 4 “Pain Points” of Cross-border RMB Transactions to Drive Foreign Trade

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The Chinese central government hopes to improve foreign trade and investment by focusing on the resolution of four major “pain points” when it comes to cross-border renminbi transactions.

On 18 September Beijing issued the draft version of the “Notice Concerning Further Optimisation of Cross-border Renminbi Policies and Support for Stabilisation of Foreign Trade and Investment” (关于进一步优化跨境人民币政策支持稳外贸稳外资的通知(征求意见稿)) for the solicitation of opinions from the public.

The Notice was jointly isdraftedsued by six regulators, including the Chinese central bank, the National Development and Reform Commission, China’s banking, insurance and securities agencies and the foreign exchange administration; and has the purpose of making “renminbi settlement more convenient…driving the convenience of trade and investment,” as well as “attracting international capital to increase its Chinese investments.”

The Notice outlines a series of new policies across fives key areas including:

  • Further simplifying cross-border renminbi settlement procedures;
  • Further optimising cross-border renminbi investment and financing regulation;
  • Making cross-border renminbi receipts and payments under personal capital accounts more convenient;
  • Making it more convenient for offshore institutions to renminbi bank settlement accounts.

A source said to 21st Century Business Herald that the Notice would allow non-investment category foreign invested enterprises to engage in re-investment of renminbi funds within China; cancel the requirements for special account management, and adjust currency factors to expedite offshore renminbi lending.

“[This] will play a significant role in driving increases in the efficiency of funds usage and reducing financing costs,” said the source.

A source involved with the drafting of the new Notice said that regulators reviewed the opinions of 154 Chinese and foreign-invested banks during the drafting process, and decided to focus on the resolution of four key “pain points” for cross-border renminbi settlement:

  1. Resolve the problem of inconsistencies between cross-border renminbi policy and foreign currency policy. This will involve treating cross-border renminbi fund and foreign debt fund usage the same as foreign currency operations, with the unified application of the existing negative list;
  2. Significantly optimise cross-border renminbi investment and financing regulation. Allow enterprises to execute foreign currency foreign debt contracts but use renminbi for repayment, in order to reduce forex risk and the difficulty of foreign currency financing. Allow non-investment category foreign invested enterprises to re-invest renminbi funds domestically without the need for specialist account management. This means that offshore investors can use domestic renminbi income for domestic re-investment without the need to establish renminbi re-investment specialist deposit accounts or other specialist accounts;
  3. Make major adjustments to offshore renminbi lending;
  4. Continue to optimise the mechanism of the key regulatory name list for cross-border renminbi operations.

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