PBoC eases cross-border yuan settlement policy

China will make it easier for firms to manage cross-border renminbi investment and financing by simplifying the renminbi settlement process, the central bank said in a circular on January 4.

The regulations will also allow domestic Chinese banks to open renminbi settlement accounts for Hong Kong and Macau residents with a 80,000 yuan ($12,386) daily limit. The circular was published by the People’s Bank of China (PBoC) and five other authorities, including foreign exchange regulator the State Administration of Foreign Exchange (Safe) and the ministry of commerce.

The new rules will take effect on February 4.

The measures are the Chinese central bank’s latest move to promote the use of the yuan in cross-border trade and finance. In September, the PBoC gave onshore banks more freedom in handling cross-border renminbi settlements in foreign trade for qualified firms. The central bank also removed some curbs on the reinvestment of renminbi funds by eligible foreign-funded firms.

Safe also set goals for 2021 to push forward the use of renminbi in cross-border financing, such as private equity funds’ cross-border investment trials.

As Beijing looks to reduce reliance on the US dollar since the trade disputes began, cross-border renminbi settlement hit record highs. In the Chinese trade hub Guangzhou, settlement grew to 3.26 trillion yuan ($504 billion) in 2019, the highest on record, according to the local PBoC branch. The increase was in part thanks to the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, the PBoC branch said.

Simplifying settlement

With the new rules, foreign companies are able to transfer funds directly to mainland China, instead of setting up special bank accounts with domestic Chinese banks.

The PBoC and other regulators will also set up a pilot programme to facilitate foreign fund remittances and cross-border renminbi settlement for approved companies.

For individuals, the rules will allow Chinese banks to open renminbi accounts for Hong Kong and Macau residents, with a remittance limit of up to 80,000 yuan per day. The funds can only be used for domestic consumer spending, while purchases of onshore stocks and real estate are prohibited.

The rules end inconsistencies between cross-border renminbi policy and foreign currency policy, said Dong Ximiao, a researcher with Fudan University. Bridging the gap between the two will both help individuals to make cross-border renminbi payments and overseas enterprises to use the Chinese currency for settlement, he said.

The yuan has strengthened around 10% against the US dollar since May 2020.