Domestic consumers will be able to pay in yuan when they shop on some foreign e-commerce websites because China now allows third-party online payment platforms to handle cross-border settlement in yuan. Five payment companies, including ChinaPay and Orient Electronic Payment Co, signed agreements with five banks – the Industrial and Commercial Bank of China, the Bank of China, China Construction Bank, China Merchants Bank and China Minsheng Banking Corp – to offer yuan payment services on five overseas e-commerce websites mainly based in Hong Kong. Online payment companies registered in Shanghai or having branches in the pilot free trade zone (FTZ) can provide cross-border yuan payment services for trading of goods and services, the Shanghai headquarters of the People’s Bank of China (PBOC) said. Individuals and companies can use the payment platforms to settle their orders in yuan to shorten the transaction period and avoid exchange rate risks. But payment companies said it will take time to expand the service to popular foreign online shopping destinations such as the U.S. as the yuan is not yet widely accepted there. The move marks the first of the central bank’s 30 ground breaking financial reform measures in the zone.

The Cross-border RMB Index (CRI) of the Bank of China (BOC) – designed to measure renminbi activity in the global market – rose by a record 56 points in the fourth quarter of 2013 year-on-year to 228, breaking the threshold of 200 for the first time. In the fourth quarter last year, renminbi settlement in China’s imports and exports increased by 30% over the previous quarter, pushing the CRI up by 20 points. Total cross-border renminbi settlement was CNY5.16 trillion, up 61% year-on-year. Under the current account, the proportion of yuan-denominated merchandise trade went from 5.5% in 2011 to 11.7% in 2013. In terms of the capital account, renminbi-denominated direct investment increased by 130% from the end of 2012. In 2013, about CNY500 billion entered overseas markets through trade or investment. It is estimated that the renminbi in overseas market may have exceeded CNY1.5 trillion. According to BOC statistics, dollar activity in the fourth quarter last year increased by 2% from the second quarter. Meanwhile, euro, pound and yen activity decreased. In comparison, renminbi activity increased by 23% during the same period. Another record rise in the currency’s profile is expected this year. In a survey among 3,000 global companies in 2013 by BOC, among the overseas companies surveyed, 61% said they would begin using renminbi or increase its proportion for settlement. BOC continues to take the lead in yuan-denominated settlement. In 2013, BOC’s cross-border renminbi-denominated settlement exceeded CNY3.98 trillion, rising by 60% year-on-year. Its domestic settlement was CNY1.77 trillion, taking up one-third of the market, much greater than other commercial banks.

China’s foreign direct investment (FDI) surged 16.11% in January compared with a year earlier, with investment from Asian economies and the United States showing the steepest rises. Foreign investors channeled USD10.76 billion into China, extending growth momentum for a 12th consecutive month. The increase was bolstered by investment from the U.S., which jumped 34.9% to USD369 million. ASEAN’s investment rose by 22.16% to USD9.54 billion, with South Korea nearly tripling its input. However, investment from the European Union fell 41.25% to USD482 million. Ministry of Commerce Spokesman Shen Danyang said January’s double-digit growth confirmed foreign investors’ confidence in China’s economy and the quality of the nation’s investment climate. Foreign investment flowing into China’s service sector grew 57.02% year-on-year to USD6.33 billion in January, while the manufacturing sector drew USD3.46 billion, down 21.69% on an annual basis. Capital pouring into central China jumped 89% and that in western China 71%. Meanwhile, China’s outbound direct investment (ODI) rose 47.2% to USD7.23 billion last month, higher than last year’s average growth of 16.8%. A note by the Australia & New Zealand Banking Group said it would be better to interpret the data in conjunction with next month’s release which will combine January and February, to account for seasonal factors such as the Spring Festival holiday.

Over the years, many predictions have been made regarding when China would achieve parity between its ODI and FDI. In 2011, Zheng Chao, an official at the Ministry of Commerce (MOFCOM), said ODI would exceed FDI within three years, predicting annual growth of 20% to 30% for ODI. In January, Commerce Ministry Spokesman Shen Danyang said ODI might exceed FDI in the coming year or two. A study from the Economist Intelligence Unit (EIU) predicted ODI would exceed FDI by 2017. Because there was still a USD27.4 billion gap between FDI and ODI last year, expecting the switch to occur this year is probably a little optimistic. Last year, China’s ODI expanded 16% year-on-year to USD90.2 billion, while FDI grew by 5.3% to reach USD117.6 billion. The five-year compound annual growth rate for FDI was 4.9%, while that of ODI was 16.6%. Assuming that these growth rates continue in each of the next three years, ODI will exceed FDI in 2016. More than any change in economic conditions, the biggest factor driving ODI and FDI in the coming years will be changes to government policy. Many approvals which were previously needed for ODI will be scrapped. Approvals will only be needed for investment in sensitive sectors and if the amount exceeds USD1 billion. More liberal policies in the China (Shanghai) Pilot Free Trade Zone (FTZ) on the other hand could lead to a large increase in FDI, the China Daily reports.

Shanghai’s trade expanded 16.5% from a year earlier in January, better than the national average of 10.3%, due to the pilot free trade zone (FTZ), the Shanghai Statistics Bureau said. Exports rose 9.8% to USD19.6 billion last month, compared with a 2.5% rise a month earlier. Imports jumped 22.9% to USD22.8 billion, compared with December’s 13.8%. The city’s Consumer Price Index (CPI) rose 3% in January, compared with 2.4% a month earlier.