China to allow RMB foreign direct investment

China has launched a trial program that will allow foreign companies to invest Chinese currency raised offshore back into the mainland, the latest step in the country’s gradual progress toward opening its rigid capital account, Dow Jones Newswires reported. On a case-by-case basis, foreign companies will be allowed to use renminbi raised offshore to set up new companies, make mergers or acquisitions, and provide loans in China, according to a statement issued by the central bank. However, they will be banned from investing in certain sectors, the announcement said, without elaborating. The move will prompt more multinational companies to issue renminbi-denominated bonds in Hong Kong, where they can obtain financing more cheaply than on the mainland, analysts at Deutche Bank (DB.NYSE) said. The announcement was first published on the website of the central bank’s Beijing branch on June 15, but a check by Dow Jones Newswires showed it was no longer available as of June 21. PBOC officials were not available for comment. China recorded CNY506.3 billion (US$78 billion) in yuan trade settlements in 2010, or 5.7% of its foreign trade, data from the central bank show.