Asia Briefing: Shanghai Free Trade Zone to allow cross-border yuan payment for trade

There are opportunities galore, but the yuan, or renminbi, remains a challenging currency in many ways. According to the global transaction services organisation Swift, the yuan was the eighth most used currency for payment in December and overtook the euro as the second most-used currency for trade finance in October.

Not bad for a currency that is technically non-convertible, but it needs to become more easily tradable if the financial services sector is really to thrive – and there are growing signs of its internationalisation.

Last week, the Xinhua news agency reported that the Shanghai branch of the People's Bank of China had greenlit five third-party payment firms to process yuan- denominated cross-border payment in Shanghai's free trade zone.

The central bank requirements are that companies that have online payment service licences and are either incorporated in Shanghai or run subsidiaries in the free trade zone and can provide renminbi settlement for cross-border trade of goods and services.

The Shanghai head office of the Chinese central bank says Allinpay, 99Bill, China Pay, Dongfang Electronics and Shengpay are now allowed to handle payments in the Chinese currency for cross- border trade in the pilot free trade zone in the nation's financial capital.

The five payment firms will each open a cross-border renminbi account at the Shanghai branch of Industrial and Commercial Bank of China, Bank of China, China Construction Bank, China Merchants Bank and China Minsheng Bank to park provisions for cross-border yuan payment.

The whole point of the Shanghai trade zone, which was launched in September, is to encourage the yuan’s international use and drive financial liberalisation, among other reforms to support free trade.

In December, the People's Bank of China announced a 30- point guideline supporting financial liberalisation in the Shanghai free trade zone.