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China is making more aggressive steps to make its currency more international and plans are afoot to expand the liberalisation of yuan in foreign trade, according to an online report by People’s Daily.

“All the 11 provinces and cities that are not on the list of the trial project of cross-border yuan trade settlement will be included in this proposed expansion. In addition, the capital account could also be liberalized further,” the report said, quoting an unidentified source.

In fact, the expansion of the project has been set as one of the major tasks on the agenda of the People’s Bank of China for 2011.

Eight overseas financial institutions are given access to China’s inter-bank bond market recently. Analysts say that initiative will facilitate the business of cross-border yuan trade settlement.

According to the central bank’s latest report on the international financial market in 2010, banks made more than 500 billion yuan of cross-border RMB trade settlement in 2010, accounting for 2% of China’s total foreign trade value that year and about 48 times the amount in 2009.

China launched the pilot project of yuan cross-border trade settlement in five cities in April 2009, namely Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan, and then extended it to 20 provinces and cities in July of the same year. At the same time, the overseas areas that are included in the projects expanded from China’s Hong Kong SAR and Macao SAR and the ASEAN countries to all its trading partners.

By the end of December 2010, 67,724 enterprises had made trade deals with yuan settlement, compared with only 365 in 2009. By February 2011, 724.9 billion yuan of trade had been settled in RMB, which was 201 times as the amount of 2009.

As the major holder and dealer of RMB account, Chinese banks are playing the leading role in the RMB clearance business. By 2010, more than half of the cross-border yuan trade settlement was handled by Bank of China, followed by the 25% by the Industrial and Commercial Bank of China, 15% by China Construction Bank (CCB) and the 8% by Agricultural Bank of China (ABC).

Currently, cross-border yuan trade settlement is conducted either by the overseas branches of Bank of China, which is the exclusive yuan clearance bank in Hong Kong and Macao authorized by the central bank, or via overseas banks’ RMB clearance accounts set up in correspondent banks on the Chinese mainland.

Competition for the business is increasing with foreign banks also keen on making their presence felt on this market. International banks, like HSBC and Bank of America, have already dominated the business in the neighbouring markets like Japan. Standard Chartered are stepping up the promotion of its role in this business in South Eastern Asia. And Hang Seng Bank’s cross-border RMB trade settlement deals surged 12 times than that prior to the expansion of the trail project to more than 35 billion yuan by the end of 2010. – Source: People’s Daily

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