China lets all firms settle trade in yuan

China boosted efforts to internationalise the yuan on Friday by widening its trade settlement rules to allow all firms in the country to invoice or pay for cross-border transactions in the Chinese currency. The central bank's announcement that the new rules will be applied nation-wide underscores the success of a 2-1/2-year trial by Beijing to globalise the yuan, which it hopes will one day rival the dollar and the euro as a major trade settlement currency.
The yuan is still tightly controlled by Beijing, but Chinese leaders say they are prepared to gradually relax their grip as they free China's capital account, grow its financial markets, and oversee a yuan that will be basically convertible by 2015.
China has allowed a 30 percent revaluation against the dollar since 2005 and says it is committed to gradual reform but has faced pressure, particularly from the United States, to lift the yuan's value further, to remove what is perceived to be an unfair advantage for Chinese exports in global markets.
"Companies that can settle their trades in yuan are no longer restricted to those selected for the pilot programme," the People's Bank of China said in a statement. "All registered exporters and importers can now settle their trades in yuan." To promote the use of the yuan internationally, China allowed 365 firms to settle their trade in the Chinese currency under a pilot programme in July 2009. The plan was expanded in 2010 to cover 20 provinces and 60,000 companies.
The success of the trial led Beijing to take the scheme nation-wide in August last year, although exporters and importers were still required to get the approval of Beijing before they could settle trades in yuan. Total trade settled in yuan jumped four-fold to reach 2.08 trillion yuan ($330 billion) at the end of 2011 from the previous year, the central bank said, or about 9 percent of China's total imports and exports for 2011.
The central bank said firms are not free of scrutiny under the expanded scheme. Those that flouted customs, trade and financial rules in the last two years will be put on a black list and cannot park their trade incomes abroad, it said. It is mostly importers rather than exporters who settle their trades in the yuan right due to expectations that the currency is set to rise. That leaves Beijing with an unremitting flow of dollars into the country that could fan price pressures.