Q&A on Cross-border Renminbi Business under the Direct Investment Account

来源: CHINA FOREX 2017 Issue 4 作者:Liu Kaixian

Q: What are the procedures for foreign investors who wish to open a domestic bank account to make investments using renminbi?

A:
When foreign investors apply to make a foreign direct investment using renminbi, they can apply to open a renminbi bank settlement account at a foreign financial institution. This would be in accordance with the “Renminbi Banking Settlement Account Management Methods” and “Renminbi Banking Settlement Account Management Methods for Foreign Institutions” (People's Bank of China, No.249, 2010) and other bank settlement account management regulations. For preliminary fees to be paid in renminbi and related to investment projects as well as the renminbi funds for domestic reinvestment he investors should open a special deposit account solely for preliminary renminbi fees and a special deposit account for  renminbi reinvestment. The funds used can be from profit distributions, liquidation, capital reduction, equity transfers and early investment recovery. This complies with the general principle of using special accounts for special purposes. Such accounts cannot handle cash payment business.

Q: How should a bank handle the opening of special deposit accounts to be used solely for preliminary renminbi fees by foreign investors?

A:
Foreign investors can only open one special deposit account for payment of preliminary or upfront renminbi fees. The account name should be in the name of the depositor and state “preliminary renminbi fees.” Foreign investors may apply for the opening of an individual renminbi bank settlement account for depositing preliminary renminbi fees in accordance with the "Renminbi Banking Settlement Account Management Methods" and other bank settlement account management regulations. Such accounts need to comply with the special deposit account management regulations for preliminary renminbi fees for foreign institutions. When a bank reports its individual renminbi bank settlement accounts for depositing preliminary renminbi fees opened by foreign investors to the cross-border renminbi payment information management system, the banks needs to include the words preliminary renminbi fees in the space reserved for “remarks.”

When banks open special deposit accounts used solely for preliminary renminbi fees for overseas investors, they shall inquire whether a foreign investor has opened a preliminary renminbi fees account in the cross-border renminbi payment information management system. Those who already have opened such an account are not allowed to open another one.

Q: Company A is a newly established foreign-invested enterprise with registered capital of 50 million yuan. It has opened a special account for renminbi capital at the local branch of Bank of China using a report issued by the business management authorities. Is it possible for it to open a renminbi capital account at the local Agricultural Bank of China?

A:
No. A newly established foreign-invested enterprise shall open a special account for renminbi capital at the bank where registration was made using a report issued by the business management authorities. The same approval document can only be used to open one special account for renminbi capital, and the account title should be in the depositor’s name and state that this is for capital funds.

Q: Company A is a foreign-invested enterprise. It has 50 million yuan of foreign investment capital which has been credited to a capital account. Can the company convert 20 million yuan of that capital into a term deposit?

A:
The renminbi funds of the special deposit account for foreign-invested enterprises can be transferred to fixed deposits of up to one year. However, foreign investors cannot use renminbi funds from offshore borrowings and transfer them to another account.

Q: Company A is a foreign-invested enterprise. In an effort to help Bank B make its deposit targets, it plans to transfer 50 million yuan of its renminbi capital account to Bank A. Is it possible for Company A to realize this plan?

A:
No. Except for the payment of wages and an enterprise's reserve funds for travel, procurements and miscellaneous expenses, the funds of foreign-invested enterprise’s special renminbi capital account cannot be transferred to domestic renminbi deposit account of the same name.

Q: Can foreign investors invest in the domestic stock market with renminbi brought in legally from offshore?

A:
At present, cross-border renminbi investment funds cannot be used to purchase securities or financial derivatives or make entrusted loans either directly or indirectly. A foreign investor buying equity in a private placement or through a negotiated equity transfer using renminbi legally acquired offshore can make use of the funds in accordance with the requirements of the "Measures for the Administration of Strategic Investment of Listed Companies by Foreign Investors." This would require the investor to undergo the required examination and approval procedures of the Ministry of Commerce.

Q: An individual whom we will call Mr A is a domestic natural person and a Chinese shareholder in a foreign-invested enterprise. If there are foreign investors who want to acquire a stake in the same Chinese company from him using renminbi, what would this person have to do to open a renminbi settlement account to make an equity funds transfer?

A:
When a foreign investor acquires a foreign-invested company set up by a domestic enterprises or acquires a stake in a foreign-invested enterprise using renminbi funds, the Chinese shareholders need to apply for an individual renminbi bank settlement account to be used exclusively for depositing remittances of renminbi acquisition funds or equity transfer funds from the foreign investors. This is done according to the “Renminbi Banking Settlement Account Management Methods” and other bank settlement account management rules. The use of the account should comply with management regulations regarding renminbi merger and acquisition special deposit accounts or renminbi equity transfer special deposit accounts.

The banks shall state “merger and acquisition” or “equity transfer” in the "remarks" portion of the documentation when individual bank settlement accounts for merger and acquisition or equity transfer are opened by a Chinese shareholder. This is for reporting under the cross-border renminbi payment information management system.


The author is from SAFE’s Yancheng Branch
 

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