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China hopes to allow yuan foreign direct investment in the country next month, the Ministry of Commerce said yesterday, but some economists are not so sure the move signals that the currency's internationalization is on a fast track.

"The ministry has released a draft regulation on cross-border direct investment in yuan and we'll try to put it into effect in September," ministry spokesman Shen Danyang told a press conference in Beijing.

His comment came after the ministry posted the draft guideline to allow foreign direct investment in the country with yuan raised offshore as the authorities encourage its internationalization. The ministry will solicit public feedback until next Wednesday.

If implemented, the rules proposed by the ministry will expand channels for overseas-acquired yuan funds to flow back into the country. But the draft states that foreign direct investments in yuan are prohibited in negotiable securities and financial derivatives. Foreign investors can't use overseas-raised yuan to provide loans or to repay domestic or overseas loans.

Although the draft signals China's determination to globalize the yuan, economists say that more needs to be done before the currency can become globalized like the US dollar.

The draft proposal confirms China's intention to open up a key channel for yuan-denominated FDI inflows, "but it only reveals the preference of one critical regulatory body," Qu Hongbin, HSBC's chief economist for China, wrote.

"Further announcements or support from other regulatory entities, including the People's Bank of China, will be critical before a further assessment can be made," Qu added.

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