SHANGHAI, July 6 (Reuters) - China has officially launched a pilot programme to allow companies to settle imports and exports in yuan in some regions, marking a major step towards eventually internationalising the Chinese currency.
The yuan is not fully convertible under the capital account, so how can firms and banks finance yuan trade? Here are the key points of Chinese rules governing financing.
* Chinese importers and exporters in selected areas, including Shanghai and China's key export province of Guangdong, sign pacts with banks for services to use yuan for trade settlement. Each firm must select one main bank to report its transactions.
* Chinese banks in these areas sign contracts with banks outside China's mainland for offshore yuan settlement services.
* Onshore banks can require offshore banks to set up a yuan pool of money for the services and can also help the latter buy yuan with foreign currencies from Chinese monetary authorities.
* Onshore banks can lend short-term yuan to offshore banks within the limits set by the Chinese central bank. For now, outstanding yuan loans an onshore bank can lend must not exceed 1 percent of its outstanding yuan deposits at the end of the previous year. The duration of the loan must not be more than a month.
* Onshore banks can also offer loans to offshore companies buying or selling Chinese goods within the limit of up to the value of foreign trade contracts.
* Qualified offshore banks in China's special administrative regions of Hong Kong and Macau can borrow or lend short-term yuan funds in China's interbank market in Shanghai, but not for longer than three months. So far, only BOC Hong Kong and BOC Macau are qualified to do so.
A Hong Kong or Macau bank's outstanding borrowing or lending must not exceed 8 percent of its total outstanding yuan deposits at the end of the previous year.
* The People's Bank of China, the central bank, will check to ensure that banks and companies do not try to use the pilot programme to get round the country's capital controls. To that end, any yuan loans must be supported by trade documentation.
* Exporters will be allowed to keep their yuan earnings outside China, which will facilitate future transactions.
* Chinese export firms involved in the trial will continue to qualify for export tax refunds. Usually, companies need to provide documentation showing they are being paid in dollars in order to receive tax rebates. (Source: the People's Bank of China website, www.pbc.gov.cn) ($1=6.83 Yuan) (Reporting by Lu Jianxin and Jacqueline Wong; Editing by Jan Dahinten)