Bank of China's yuan trade settlement hits 3 bln yuan

SHANGHAI, March 4 (Reuters) - Bank of China's (601988.SS) (3988.HK) Shanghai branch has conducted more than 3 billion yuan ($440 million) in trade settlement in yuan under a pilot scheme for such business, the People's Bank of China said on Thursday.

Bank of China, the country's biggest foreign exchange lender, accounted for more than half of yuan trade settlement business in China's financial centre as of Feb. 23, the central bank's Shanghai headquarters said in a statement.

The figure suggests that a pilot programme launched last year, allowing firms in some parts of the country to denominate their trade with companies in Hong Kong and some neighbouring countries in yuan, could be starting to take hold after an initial slow start.

When launched in July of last year, the scheme for settling some trade in yuan was heralded as a step towards relaxing capital controls and eventually internationalising the currency CNY=CFXS.

However, it hit roadblocks as foreign buyers had trouble getting hold of yuan, or had trouble investing the yuan they do hold, or were reluctant to part with their yuan on account of expectations the currency would appreciate.

CONTROLLED CONVERTIBILITY

Officials have said Beijing may expand the scheme, including by allowing more companies to participate and by easing the geographical restrictions. [ID:nTOE61R00F]

Under the programme, Chinese importers and exporters in selected areas can apply for the right to sign agreements with banks to use yuan to settle trade deals. Chinese banks in these areas then arrange contracts with banks outside the mainland to support the offshore yuan settlements.

Chinese officials are under pressure from the United States and other countries to let the yuan rise in value to relieve U.S. and other countries' exporters and so reduce their big trade deficits with China.

In the meantime, Beijing has been gradually implementing programmes that allow for tightly controlled convertibility of the currency, as it seeks to build the basis for eventually floating the currency.

The Hong Kong Monetary Authority last month said Hong Kong was expanding its yuan banking business to allow non-Chinese companies to issue yuan bonds in the territory, potentially increasing yuan-denominated investment products.[ID:nTOE61A063]

A Hong Kong financial services official said on Thursday the city, which aims to become an offshore financing centre for yuan, was in talks with Beijing to launch regular yuan sovereign bond issues there, with a new issue expected within a year. [ID:nTOE623086] ($1 = 6.83 yuan) (Editing by Jason Subler and Susan Fenton)