Companies Show Strong Interest in RMB-backed FDI

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Sept. 20 – Shortly after the issuance of a draft regulation that allows Chinese yuan-denominated foreign direct investment (FDI), myriad companies have been lining up to inquire about related details on the new program, the Shanghai Daily reports.

Pei Yigen, treasury and trade solutions product head of Citibank (China) Ltd and Shanghai branch manager, said lots of companies – mostly multinationals – have inquired with the bank on RMB-backed FDI.

Those companies with inquiries come from a variety of countries (including the United States, Europe and the Middle East), and engage in different industries (mainly in the retail, industrial, electronics and chemicals sectors), according to Pei.

The bank itself has even started to help customers to access the trial program on a case by case basis. So far, under the guidance of the People’s Bank of China Shanghai Office, four such transactions – including transactions of shareholder loans – have been initiated.

China started promoting greater use of its local currency as the 2008 Global Financial Crisis and the European sovereign debt crisis have shaken the dominance of the U.S. dollar. The country has expanded RMB-denominated cross-border trade settlements to the whole nation in August this year and it has also been encouraging offshore RMB capital raising – most of which took place in Hong Kong – in a move to allow companies to bring offshore RMB proceeds back onshore for business development.

In August, the Chinese Ministry of Commerce released a draft circular on RMB-backed FDI and said it hopes to have an official legal framework in place as early as this month.

“It is a natural step to see the rise of the local currency with China’s rising economic clout in the world,” said Pei.

In addition to China’s own need for a reflow of RMB funds acquired overseas, Pei believes foreign investors will also benefit from the RMB’s further internationalization, as the new regulations will not only help eliminate foreign exchange uncertainties for companies, but also offer a new funding avenue for them.

Yu Jianhua, assistant minister of commerce, estimated that FDI to China may exceed US$100 billion again this year. Total FDI attracted over the past eight months has reached US$77.6 billion, up 17.7 percent from a year earlier.

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