China’s Yuan Accessible to Foreigners

China began allowing foreign companies to use the yuan to invest in the country, according to a document from the Chinese central bank Wednesday quoted by the press and should promote the internationalization of the Chinese currency.

Foreign investors can use the yuan to fund the settlements, mergers and acquisitions, capital increases or lend money to the shareholders of the company, said the Diyi Caijing Ribao (China Business News).

Until recently, foreign direct investment (FDI) in China is carried out in foreign currencies. In 2010, they amounted to 105.74 billion dollars.
Permission to invest in yuan in the second largest world economy is currently in an experimental phase, during which each investment in the national currency must be approved by an ad hoc committee, said the central bank.

China, whose currency is still tightly pegged to the dollar and is not convertible for capital accounts, now encourages the use of the yuan to trade with neighboring countries, including Southeast Asia, and carried several issues of bonds in Hong Kong.
Several international companies, including Coca-Cola have also issued bonds in yuan.

In 2010, 5.7% of foreign trade of China, or 506.3 billion yuan (54.5 billion) were paid in yuan, according to figures from the central bank cited by the agency Dow Jones.

The ability to use yuan to invest is “a major step forward in the internationalization of the renminbi (the official name of Chinese currency),” said Ma Jun, China economist for Deutsche Bank, quoted by the Diyi Caijing Ribao.

The new regulation allows such companies to request the use of the yuan raised in Hong Kong or abroad to invest in China, according to Deutsche Bank. The measure should also accelerate the development of bond issues and raise funds in yuan in Hong Kong, said Ma.

Nearly two thirds (65%) of foreign companies say they are interested in using yuan instead of foreign currency to invest in China, according to a survey by Deutsche Bank with 44 multinationals.