CHINA HAS taken a further step towards increasing its currency’s global role, allowing domestic companies to move renminbi offshore for investment purposes.

The shift came as the People’s Bank of China allowed the currency’s daily trading reference point to strengthen through the Rmb6.6 to the dollar level for the first time yesterday, a day after US treasury secretary Tim Geithner reiterated concerns about China’s currency policy.

The renminbi, which many of China’s trading partners believe is undervalued, will feature in discussions next week between Chinese president Hu Jintao and US president Barack Obama in Washington.

Companies have been allowed to use the renminbi to settle international trade transactions since July 2009, under a plan to reduce Beijing’s reliance on the dollar.

According to the People’s Bank of China, mainland companies can now use the renminbi to launch businesses overseas and fund acquisitions.

“This is an important step to internationalise the renminbi,” said Dariusz Kowalczyk, a strategist at Crédit Agricole. “It’s significant because this will provide an additional means for renminbi to flow out of China.”

Chinese firms will still have to apply for government approval to send renminbi offshore – just as they must do for investments settled in foreign currencies.

“It will be interesting to see if the foreign sellers of companies that the Chinese want to buy will be willing to accept renminbi,” Mr Kowalczyk said.

According to bankers, the Chinese government is encouraging large state-owned enterprises to make acquisitions in renminbi rather than other currencies. – (Copyright The Financial Times Limited 2011)