China allows foreign investors to use RMB in financial sectors

Part of effort to broaden RMB use in cross-border investments.

The People’s Bank of China, the central bank, will allow foreign businesses to invest in domestic financial firms using offshore renminbi or yuan funding.

Foreign businesses can invest their RMB revenues in domestic financial firms in several ways. These include setting-up joint ventures or mergers or buying stakes in domestic firms.

These investments will, however, still need to be approved by Chinese authorities. Beijing has been stepping up efforts to attract offshore money back into China by relaxing investment restrictions as capital flowing into its economy slows but outflows rise amid slowing economic growth.

Rules issued in 2011 say foreign investors can invest a domestic firm’s RMB profits made in China and RMB funds from share transfers and asset sales that have been remitted overseas, but not in the financial sector.

China’s RMB is convertible under the current account but remains under tight restrictions on the capital account, particular on debt and portfolio investment.