Under the new regime, onshore renminbi account banks must ensure that a specific renminbi account opening process is observed by foreign investors (i.e., dim sum bond issuers as well as the onshore entities receiving renminbi) and a post facto filing with the PBOC is required. This signals the "normalisation" of the renminbi repatriation process for foreign direct investment purposes and, significantly, in the context of "dim sum bond" issuances.
This Alert focuses on the legal and practical implications of the Measures in the space of repatriation of dim sum bond proceeds. Another Alert will follow with a more detailed analysis from the perspective of foreign direct investment.
An English translation of the Measures can be found by clicking here.

Scope of application

The Measures apply to "foreign direct investment". This term includes investment by way of equity (through the establishment of a new foreign invested enterprise (FIE), the increase of the registered capital of an FIE, the acquisition of a domestic company or the acquisition of an FIE from a domestic shareholder) as well as debt. This is consistent with the Prior Regime pursuant to which the jurisdiction of the PBOC extended to repatriation of dim sum bond proceeds by way of both equity injection and cross-border loan to an onshore entity.

Equity investment

Under the Prior Regime, the repatriation of dim sum bond proceeds by way of equity injection required the prior approval of both the Ministry of Commerce (MOFCOM) and the PBOC, which have jurisdiction over repatriation from the perspective of foreign direct investment and currency regulations, respectively.
An eAlert on the Circular on Issues Concerning Cross-Border Renminbi Direct Investment recently published by MOFCOM which deals with renminbi equity investment from the perspective of foreign direct investment will be published shortly.
The Measures have now obviated the need to obtain prior approval from the PBOC for repatriation of dim sum bond proceeds by way of equity injection. Instead, the Measures have established a renminbi account opening process to ensure that such repatriated proceeds are clearly segregated from renminbi obtained onshore and the usage of such proceeds is properly monitored by the account opening bank. Specific renminbi accounts need to be opened for designated usage such as pre-establishment disbursements, re-investment, registered capital, acquisition, share transfer etc. No cash transactions are permitted for such specific renminbi accounts. This principle of segregation and monitoring is very much the same as that for foreign direct investment in foreign currencies.
In addition, within 10 business days of the issuance of the business licence of the relevant FIE (for either new establishment or acquisition), the FIE should register relevant information with the local branch of PBOC and the latter will complete the registration within another 10 business days.

Debt investment

Under the Prior Regime, repatriation of dim sum bond proceeds by way of loan to an onshore entity required the prior approval of the PBOC. Formalities with the State Administration of Foreign Exchange, or SAFE, in respect of foreign debt have also been observed following the PBOC approval.
The Measures have removed the need to obtain prior approval from the PBOC for repatriation of dim sum bond proceeds by way of debt. Article 17 of the Measures indicates that only loans from a shareholder, group affiliate and a financial institution would be allowed. The implication is that the offshore lender (in most cases also the dim sum bond issuer) should be either the parent or a group affiliate of the onshore entity receiving the proceeds or be a financial institution. Interestingly, this seems to have re-opened the door for offshore financial institutions to lend renminbi to onshore entities which had been prohibited since only early August of this year.
Permitted cross-border renminbi loans will continue to be counted towards the so-called "headroom" of the onshore borrower, i.e., the difference between the MOFCOM-approved total investment amount and the registered capital of such entity. A renminbi "General Deposit Account" should be opened by the onshore borrower for depositing the repatriated loan proceeds. No post facto registration with the PBOC is needed, nor will payment of interest and repayment of principle of such loans require additional regulatory approval or formalities with SAFE.

Conclusions

The Measures reflect the determination of the PBOC as China's central bank to continue to promote the internationalisation of renminbi. The new regime is more transparent and practical for the purposes of foreign direct investment in renminbi. More specifically of interest to dim sum bond issuers, the Measures have removed considerable uncertainty in terms of the success and timing of the repatriation of dim sum bond proceeds and are likely to encourage more issuers to come to the market.