PBOC Simplifies Cross-Border RMB Transactions

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Jul. 18 – China’s central bank, the People’s Bank of China (PBOC), recently released the “Circular Concerning the Simplification of Cross-Border RMB Procedures and Improvement of Relevant Policies (hereinafter referred to as “Circular”)” to provide a series of new measures to help simplify cross-border RMB transaction procedures and to improve the efficiency of the implementation of any relevant policies.

The Circular states that domestic Chinese banks can now directly process cross-border RMB settlements for enterprises based on the principles of “know your client”, “know your business”, and “due diligence.” It further encourages domestic banks to offer cross-border RMB trade financing services. In addition, automatic RMB fund collections may now be processed prior to the authentication and verification of the relevant trade background.

The Circular is expected to increase the efficiency of RMB denominated trade and further facilitate the adoption of the RMB for global trade transactions.

The Circular also allows for domestic Chinese non-financial institutions to now apply for loans from domestic banks to be distributed to their foreign affiliates through a RMB cash pool with the stipulation that the loans are repaid in RMB. To qualify, the non-financial institutions should have a RMB special deposit account with a domestic Chinese bank in order to support the loans that are sent across the Chinese border in accordance with “Measures for the Administration of RMB Bank Settlement Accounts (PBOC Order [2003] No. 5).”

In addition, non-financial institutions in China that have opened RMB special deposit accounts with a Chinese domestic bank may use their account to reserve funds raised from issuing RMB denominated bonds to offshore capital markets. However, the remittance of the bond proceeds needs to be approved by the PBOC in advance.

The Circular also notes that the funds raised from the issuance of the RMB denominated bonds should be used strictly in accordance with the scope of usage stated in the respective bond prospectus.

Furthermore, non-financial institutions in China are also now allowed to offer RMB guarantees to other similar institutions in compliance with the provisions of China’s Property Law and Guarantee Law.

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