The General Office of the People's Bank of China ("PBC") has recently issued the Circular on Matters Concerning Further Improving Administration of Cross-border Cash Flow to Support the Opening-up of the Financial Market (the "Circular"), immediately effective from the issue date.
The Circular provides that, overseas Renminbi (RMB) clearing banks and overseas RMB business participant banks may carry out such business as the inter-bank lending, financing through cross-border accounts, and bond repo transactions in the inter-bank bond market, under the existing policy framework, to facilitate the liquidity for the sake of the development of RMB business in offshore markets. Overseas RMB clearing banks shall earnestly fulfill their duties as the clearing banks and prepare the comprehensive plans to manage RMB liquidity and the thorough plans to respond to risks. In addition, the Circular expressly states that the reserve requirement ratio (RRR), applicable to RMB deposits made by Hong Kong and Macao RMB business clearing banks into the clearing accounts at the Shenzhen Central Sub-branch and Zhuhai Central Sub-branch of the PBC, will be adjusted to zero. Furthermore, the Circular calls for further optimizing the fund remittance mechanism for the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, in a bid to make it more convenient for overseas investors to use RMB or foreign currencies to make investment.