Shanghai Gets Policy to Achieve Free Use of the Yuan in Investment

The State Council of China recently held a press conference announcing that the PBOC (People's Bank of China) decides to support Shanghai in exploring the free use of the yuan in cross-border trade and investment and unlimited currency exchange in the city's new free trade zone, the Pudong New Area.

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The decision is to increase the willingness of foreign companies and investors to use the currency, and to create favourable conditions for overseas yuan to return to China for investment.

In newly-released guidelines for the development of Shanghai's Pudong New Area, the PBOC said the key areas of focus for will include innovating internationally oriented yuan-denominated financial products, expanding the scope of foreign financial products denominated in yuan for domestic investment, and promoting the cross-border flow of funds. In addition, China will continue to open up the bond, stock, forex, commodities futures, and financial derivatives markets. restrictions on foreign holdings of equity in financial sectors and on enterprises looking to enter sectors including credit ratings and payments will all be cancelled.

Earlier this month, the State Council announced China might allow foreign firms to invest offshore yuan via QFII. The trial would allow qualified foreign institutions to invest offshore yuan in Shanghai's STAR Market, in another move aimed at boosting the global use of the yuan and further opening up the domestic financial markets.