Wenzhou pilot promotes cross-border yuan services

As a pilot program takes shape in Wenzhou to allow individuals to make direct overseas investment with Chinese currency, expectations have arisen that the program will be further expanded to include more cross-border yuan transaction services.

But a source close to the situation said on November 16 said the central government hasn't worked out any policy to implement broader individual cross-border yuan business. There is also no timetable to expand the pilot program.

As part of the reform plan, on November 23 the government of Wenzhou, in the coastal province of Zhejiang, announced 12 measures, including allowing individual investors to make direct overseas investments with the yuan.

The president of the central bank's Wenzhou branch, Wu Guolian, said the city government has drafted detailed guidelines for such investments, and submitted the drafts to the State Council, China's cabinet.

The program is expected to be expanded beyond Wenzhou, Wu said.

Yuan-dominated individual overseas investment is a key part of individual cross-border yuan business, which includes remittance, financing and other services.

The central bank is eyeing further expanding individual cross-border yuan business in order to push forward international settlement of the currency, said central bank governor Zhou Xiaochuan.

Ding Zhijie, director of Finance School at the University of International Business and Economics, said the pilot in Wenzhou is an important step in making the yuan convertible under capital accounts.

According to a reform draft proposed by Wenzhou government in January, individuals will be allowed to make overseas investments through establishing new businesses, mergers and acquisitions, and equity investments. The limit for individual investment is US$ 3 million.

Ding said supportive policies regarding financing and investment guidance were needed to encourage individual investment overseas, and effective supervision measures were important.

Ma Jun, chief China economist at Deutsche Bank, said that an important aspect of overseas individual investment was liberalizing controls on cross-border yuan remittance.

Under current policy, the yuan cannot be directly sent to overseas accounts. Individuals are allowed to send US$ 50,000 overseas annually.