China has formalised rules allowing foreign firms to use yuan raised overseas to make investments in the country, a report said Wednesday, as part of moves by Beijing to internationalise its currency. A trial scheme will permit overseas companies to use yuan raised offshore to set up companies, make acquisitions, increase stakes in subsidiaries and provide loans, the China Business News said, citing a central bank statement.
They will be banned from investing in certain industries, the report said, without providing details. The statement appeared to have been removed from the central bank's website on Wednesday. The People's Bank of China will review foreign investment projects on a case-by-case basis, the report said. The statement marks the first time China has issued specific rules on yuan-denominated foreign direct investment in the country and analysts said it would encourage wider use of the unit overseas.
"This policy on yuan-denominated foreign direct investment is a significant stride towards making the yuan an international currency," Deutsche Bank economist Ma Jun was quoted saying. The rules are expected to accelerate the issue of yuan-denominated bonds and other forms of yuan financing in Hong Kong, a semi-autonomous Chinese territory, Ma added. A growing pool of investors have piled into yuan in a bid to capitalise on the currency's expected appreciation, but there are limited investment outlets for the cash.
Beijing in recent years has relaxed limits on the convertibility of the yuan in its push for greater use of the currency abroad. The country has signed swap arrangements with several nations and launched trials for yuan trade settlement with a number of mainly Southeast Asian countries. Yuan-related financial products have also boomed in Hong Kong, which has been acting as a test bed for Beijing's ambitious goal to turn the unit into a global currency.
In 2009, China approved using the yuan to settle cross-border trade with Hong Kong and last year it relaxed rules to allow non-financial foreign firms to issue yuan-denominated bonds. In January, the World Bank issued its first yuan-denominated bonds, which it said would "further deepen the market and permit investors to diversify their currency holdings and expand renminbi (yuan) exposure". That came after heavy equipment maker Caterpillar and fast-food giant McDonald's each issued yuan-denominated bonds in Hong Kong, the first such sales by non-financial foreign firms in the city.
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