Go-ahead for yuan investment
By Feng Jianmin |
October 15, 2011, Saturday
|
Print Edition
Print Edition
CHINA yesterday established the framework for yuan-denominated foreign direct investment, a step toward the government's goal of expanding the currency's international credentials.
The People's Bank of China announced that foreign institutional and individual investors raising yuan legally from offshore markets, such as Hong Kong, will be able to make direct investments that conform with Chinese laws and regulations.
The Ministry of Commerce yesterday said foreign investors making yuan investments will not be allowed to trade negotiable securities and financial derivatives, nor to use offshore-raised yuan to provide or repay loans.
It said funds of 300 million yuan (US$47 million) or more will require regulatory approval, as will investments in certain industries, including cement, steel, and ship making and leasing.
The move followed Vice Premier Li Keqiang's remarks in August pledging support for Hong Kong enterprises making direct investments on the Chinese mainland using the yuan as the means of settlement.
Magnus Montan, head of international business at HSBC China, said: "The announcement is another significant step forward in the development of the yuan into an international currency. The new regulations introduce a streamlined process, bringing added transparency and clarity to yuan investing on the mainland."
He said overseas businesses will be key beneficiaries, as greater flexibility in selecting the investment currency will enable them to minimize foreign exchange risks and costs.
But Zhao Qingming, a senior researcher at China Construction Bank, said that even though the measure will theoretically reduce the pressure on China's foreign exchange reserves - the world's largest - it is questionable how great the demand will be.
The cost of raising yuan on the offshore market is high and investment options are limited, he said.
China's foreign reserves rose US$200 billion in the third quarter to US$3.2 trillion, according to the central bank.
China's huge reserves are believed by some economists to be a source of excessive market liquidity and domestic inflation.
The People's Bank of China announced that foreign institutional and individual investors raising yuan legally from offshore markets, such as Hong Kong, will be able to make direct investments that conform with Chinese laws and regulations.
The Ministry of Commerce yesterday said foreign investors making yuan investments will not be allowed to trade negotiable securities and financial derivatives, nor to use offshore-raised yuan to provide or repay loans.
It said funds of 300 million yuan (US$47 million) or more will require regulatory approval, as will investments in certain industries, including cement, steel, and ship making and leasing.
The move followed Vice Premier Li Keqiang's remarks in August pledging support for Hong Kong enterprises making direct investments on the Chinese mainland using the yuan as the means of settlement.
Magnus Montan, head of international business at HSBC China, said: "The announcement is another significant step forward in the development of the yuan into an international currency. The new regulations introduce a streamlined process, bringing added transparency and clarity to yuan investing on the mainland."
He said overseas businesses will be key beneficiaries, as greater flexibility in selecting the investment currency will enable them to minimize foreign exchange risks and costs.
But Zhao Qingming, a senior researcher at China Construction Bank, said that even though the measure will theoretically reduce the pressure on China's foreign exchange reserves - the world's largest - it is questionable how great the demand will be.
The cost of raising yuan on the offshore market is high and investment options are limited, he said.
China's foreign reserves rose US$200 billion in the third quarter to US$3.2 trillion, according to the central bank.
China's huge reserves are believed by some economists to be a source of excessive market liquidity and domestic inflation.
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