November 01, 2011

Administrative Measures on Renminbi Settlement for Foreign Direct Investment

Issuing Body: People's Bank of China
Issuing Date: October 13, 2011
Effective Date: October 13, 2011

On the same day that China's Ministry of Commerce (MOFCOM) issued the Circular on Issues Concerning Cross-Border RMB Direct Investment (Final RMB Investment Circular, summarized elsewhere in this issue of China Law Update), the People's Bank of China (PBOC) released the Administrative Measures on Renminbi Settlement for Foreign Direct Investment (RMB Settlement Measures). The RMB Settlement Measures, issued on October 13, 2011, provide guidance to banks processing RMB settlements for foreign direct investment (FDI). The PBOC rules are key to implementing MOFCOM's guidelines, which permit foreign investors to use RMB funds legitimately obtained outside China to make direct investments inside the country, with some restrictions.

The RMB Settlement Measures are the most recent of several such PBOC regulations, dating back to July 2009, when the Administrative Measures on a Pilot Program for Renminbi Cross-Border Trade Settlement were issued; that pilot program has since been expanded nationwide. More recently, in June 2011, the PBOC issued the Notice Concerning Issues Related to Cross-Border RMB Business; despite expansion, those rules make it clear that PBOC approval of RMB-denominated FDI is still on a case-by-case basis, implying there may be substantial arbitrariness in the process. FDI using offshore-derived RMB is also banned from "national restricted projects" and "key projects under adjustment"—neither of which is clearly defined. In addition, an RMB-denominated investment must be approved by the PBOC after approval from MOFCOM or its offices has been obtained. The timeline for PBOC approval is not specified.

Key provisions of the RMB Settlement Measures are summarized below.

Bank Account Requirements

The RMB Settlement Measures require foreign investors to open different types of bank accounts depending on how the RMB funds will be used:

  • If the RMB funds are to be used for early-stage expenses of an investment project, an RMB Early-Stage Expense Account should be opened.
  • For RMB funds received by a foreign investor from one or more domestic foreign-invested enterprises in which it has invested and earmarked for domestic reinvestment, an RMB Reinvestment Account should be opened.
  • Foreign investors should open an RMB Capital Account for RMB funds contributed by foreign investors as capital of a foreign-invested enterprise.
  • For RMB funds that are to be used by foreign investors as consideration for the purchase of an equity interest in a foreign-invested enterprise owned by Chinese parties, the Chinese parties should apply to open an RMB Equity Transfer Account to receive and maintain the RMB funds remitted by foreign investors.
  • For RMB funds used by foreign investors to acquire domestic enterprises owned by Chinese investors, the Chinese investors should apply to open an RMB M&A Account to receive and maintain the RMB funds remitted by foreign investors.
  • For RMB-denominated investments made by foreign-invested holding companies, foreign-invested venture capital investment enterprises, foreign-invested equity investment enterprises, and foreign-invested partnerships that are mainly in the business of making investments, the enterprises in which they have invested should open RMB Capital Accounts.

Cash deposits and withdrawals are not allowed with any of the above types of accounts.

PBOC Registration Requirements

The RMB Settlement Measures require foreign-invested enterprises (FIEs), including newly established FIEs and those created by mergers and acquisitions, to register their basic information with the local PBOC branch. PBOC branches should complete registration within ten working days after having received a full set of application documents.

In the event of a change to the FIE's name, operation term, or capital contribution methods, or if the FIE experiences a capital increase, capital decrease, equity transfer, consolidation or split, the FIE should update its PBOC registration within 15 working days of registering that change with the Administration of Industry and Commerce.

Capital Verification Requirements

Foreign-invested enterprises are directed to engage a licensed accounting firm to verify the RMB capital contribution and RMB capital for an equity purchase. The accounting firm may issue a capital verification report after conducting an inquiry with the bank at which the RMB account is opened.

Supervision and Administration of Foreign Direct Investment RMB Business

Banks are required to examine the authenticity and compliance of RMB funds, and to perform their obligations to prevent money laundering and the use of funds for criminal activity, including terrorism.

According to the RMB Settlement Measures, the PBOC will establish necessary information-sharing and management systems with "relevant agencies" to implement effective supervision and regulation of RMB-denominated foreign direct investment business.

The PBOC, together with other "relevant agencies," may publicly criticize or impose penalties on banks or foreign-invested enterprises that violate provisions of the RMB Settlement Measures. In severe cases, the PBOC may suspend or forbid the banks or FIEs from conducting RMB-denominated FDI business.


The RMB Settlement Measures do not go into much detail. As a result, many matters regarding RMB-denominated FDI business need to be clarified: for example, which sectors or projects are banned from RMB investment; to which specific department a PBOC registration application should be submitted; with which agencies PBOC will establish information-sharing and management systems; and what is the expected  timeframe for obtaining approval from the PBOC for opening an RMB bank account and processing RMB business. Given that RMB-denominated FDI is still in a preliminary stage, it remains to be seen how the RMB Settlement Measures will be implemented in practice.

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