By staff reporter Wang Ziwu
 
(Caijing.com.cn) The central bank has published rules governing trials for settling trade in China's currency, the yuan, officially kicking off a program proposed earlier this year. 

The rules, released by the People's Bank of China on July 2, are effective immediately, and call for the selection of qualified firms in specified regions to participate in the pilot program. 

The selected firms can choose clearing banks in Hong Kong and Macau as well as domestic lenders to act as agents for foreign banks seeking to settle trade in yuan, the central bank said.

The PBOC, in conjunction with the Hong Kong and Macau monetary authorities, designated Bank of China's Hong Kong-listed unit as the clearing bank for the two special administrative regions. 

Clearing banks are also allowed to offer yuan cross-border settlement and clearing services to clients from Hong Kong, Macau and the ASEAN nations included in the pilot program. 

Exporters receiving payment in yuan will still be eligible for tax rebates, but they no longer need to provide foreign exchange verification documents issued by the State Administration of Foreign Exchange when applying for the rebates.

The State Council approved the yuan settlement pilot program on April 8. It will link five mainland cities - Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan - to Hong Kong and Macau. 

However, the scheme's implementation was delayed as transactions will be handled by the State Administration of Taxation rather than the State Administration of Foreign Exchange. The shift in supervision required the drafting of new tax rebate guidelines. 

BOC Hong Kong Ltd. research chief Xie Guoliang told Caijing that almost all the Hong Kong local banks had reported strong demand for yuan settlement services. 

Both companies and lenders in Hong Kong welcome China's moves in signing currency swap deals with other countries, said Xie, adding the yuan settlement pilot program is a "very good auxiliary measure" that complements the swap agreements, China has recently signed six such deals worth a total of 650 billion yuan with regions and nations including Hong Kong, Indonesia and Malaysia.

Xie said that the volume of transactions settled in yuan will initially be small as all the lenders, firms and regulators involved take tentative steps to test the program during the initial phase. 

Bank of Communications chief economist Lian Ping also said that the volume and scope for yuan settlement will be limited in the preliminary period, adding that the "the key is to see if the implementation of the program can effectively push up market demand."

People familiar with the situation also told Caijing that the central bank is planning to set up a new regulatory unit to manage the pilot program, as well as efforts to boost the internationalization of yuan.

1 yuan = 14 US cents

Full article in Chinese: http://www.caijing.com.cn/2009-07-02/110192284.html