China Allows Companies to Give Yuan Loans to Overseas Affiliates

China’s central bank released rules allowing companies to move yuan abroad more freely as the authorities seek to bolster global use of the nation’s currency.

Companies can now open yuan accounts with local banks through which they can lend in the currency to overseas affiliated companies, the People’s Bank of China said in a statement posted on its website today. The so-called yuan-pool lending business can be shared between subsidiaries or affiliated firms under one company, the central bank said.

China, the world’s second-largest economy, has promoted the role of the yuan in international trade and financing as it moves to reduce control over the currency and open up its financial markets. That effort has included expanding channels for cross-border capital flows and foreign investments and setting up direct trading of the yuan with more currencies.

“Allowing multi-nationals to lend yuan out via a money pool can help them reduce costs,” Zhang Bin, a researcher with the Chinese Academy of Social Sciences, said by telephone today. “The move is in line with China’s direction of capital account opening.”

Chinese authorities had earlier allowed companies to lend yuan to their affiliates as part of a trial program. Standard Chartered Plc announced in November it won approval from the PBOC to help an unidentified American company lend 3.3 billion yuan ($538 million) to its overseas affiliates. Citigroup in January said it completed a cross-border yuan transaction for a European food company.

Overseas Yuan

The central bank also said today it will allow companies to move yuan raised overseas back into China through yuan accounts with local lenders. Companies may also provide yuan-denominated guarantees for their foreign operations, according to the statement.

The PBOC amended a rule on the processing of credit-card payments, deleting a requirement that cross-border transactions be processed by China UnionPay.

The regulation now requires that such transactions be processed by “a domestic bank card clearing entity,” paving the way for the government to approve other processors in addition to UnionPay. Visa Inc. (V), MasterCard Inc. (MA) and American Express Co. (AXP) were among companies to win partial support last year from World Trade Organization judges in a U.S. claim that China unfairly restrains the payment processors.

The central bank also issued rules for the country’s online payment industry. The regulations outline requirements for service providers including those for information security and risk management.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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