MOFCOM regulates cross-border RMB direct investment projects


On 12 October, the Ministry of Commerce published its Issues Regarding Cross-border Renminbi Direct Investment Notice (Shang Zi Han [2011] No. 889) to govern various matters in connection with the use of the renminbi in cross-border direct investment.

The Notice governs the use of renminbi which is derived lawfully from overseas by foreign investors, while the use of renminbi derived lawfully from inside China continues to be governed by relevant regulations currently in force.

The Notice sets out several scenarios where foreign investors derive “offshore renminbi”:

  • renminbi which is derived from the use of renminbi as the settlement currency for cross-border trade;
  • renminbi profits which are lawfully derived from inside China and remitted out to overseas countries and renminbi which is derived from share transfer, capital reduction, liquidation and early recovery of investment;
  • renminbi which is derived through legal channels overseas (such as the issuance of renminbi-denominated bonds or stocks).

The Notice also provides for some rules to be followed for cross-border renminbi direct investment, including the following:

  • cross-border renminbi direct investment and reinvestment by foreign investment enterprises in which such direct investment is made must be in compliance with the requirements of foreign investment legislation and relevant rules, national foreign investment industrial policies as well as relevant rules on security review of mergers and acquisitions by foreign investors and antitrust review;
  • cross-border renminbi direct investment must not be directly or indirectly used for investment in negotiable securities or financial derivatives (other than the use of lawfully derived offshore renminbi in the issuance of shares to specific target subscribers or transfer of shares by agreement by Chinese listed companies in accordance with the Strategic Investment by Foreign Investors in Listed Companies Administrative Measures) or in entrusted loans in China.

The Notice does not change the existing mechanisms for the approval of foreign direct investment. The departments of commerce at all levels should continue to examine and approve cross-border renminbi direct investment in accordance with the existing regulations governing the approval of foreign investment. For cross-border renminbi direct investment that meets the following criteria, the provincial departments of commerce will give consent after reporting these cases to the Ministry of Commerce for examination and approval:

  • capital contribution in renminbi with an amount of 300 million or above;
  • certain sectors such as financing guarantee, financing lease, microfinance and auction;
  • foreign companies of an investment nature, foreign venture capital investment or equity investment firms; and
  • certain sectors regulated by national macro-control initiatives such as the cement, iron and steel, electrolytic aluminium and shipbuilding sectors.

In addition, the Notice stresses that cross-border renminbi direct investment in the real estate sector must be carried out in accordance with existing rules governing the approval and filing of foreign investment in the real estate sector.

Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at Readers should not act on this information without seeking professional legal advice. subscripton ad red 2022