China has expanded the cross-border Renminbi settlement pilot scheme, which commenced on a limited scale a year ago. The recently issued Notice on Relevant Issues in Expanding Pilot Projects for Settlement in Renminbi in Cross-border Trade ("Notice") expands the scope of the scheme to enterprises in 20 provincial-level regions for transactions with all of China's trading partners.
More PRC enterprises and their offshore trading partners will now be able to settle their payments for goods and services in Renminbi rather than foreign exchange, thus avoiding exchange rate risk and often onerous bank and customs declaration procedures. The scheme will further contribute to the internationalisation of the Renminbi as a trade currency.
Who can participate?
The operation of the scheme is governed by two sets of rules that were issued when the pilot scheme was originally introduced about a year ago . In 20 provincial regions and cities, including Beijing, Shanghai and Guangdong, enterprises that have been approved will be able to pay for their merchandise imports, service trade and other current account transactions in Renminbi. In a slightly more select group of 16 provincial regions and cities  enterprises will also be able to accept Renminbi for their export of goods. Finally, in eight border provinces of China  any enterprise that has import or export rights can receive Renminbi for its general and small border export trade conducted at designated ports with neighbouring countries.
For an enterprise to become eligible for the benefits of the scheme, the provincial government where it is located must submit its candidacy for approval to the six national agencies that issued the Notice. No specific selection criteria have been published and the provincial governments have been able to use their own judgment in putting forward candidates for the scheme. Foreign invested enterprises established in China can also apply to be designated enterprises under the existing pilot scheme.
When the scheme was initially introduced a year ago, Renminbi could only be used for trade with Hong Kong, Macao, and the Asean countries. The expanded scheme has done away with these geographical restrictions and trade with any foreign country can now be settled in Renminbi.
There is no limit on the amount of Renminbi that enterprises may use for their cross-border payments. The pilot enterprise can deposit their Renminbi income from exports in an offshore account in order to meet the payment needs of the enterprise. Trading partners will also be permitted to exchange foreign exchange to Renminbi and vice versa to pay for goods and services.
The scheme permits PRC enterprises to access trade financing on commercial terms for the maximum amount involved in the transaction. Foreign banks can establish Renminbi accounts for PRC and foreign enterprises to facilitate the Renminbi settlements.
Only eligible onshore banks can act as the onshore settlement bank. These banks also include branches of foreign banks.
The expanded scheme creates new opportunities for Chinese and foreign parties to settle their transactions in Renminbi. Banks inside and outside China will be able to expand their services to Renminbi settlements and financings relating to cross-border trade. The implementation of the scheme supports the internationalisation of China's currency.
The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorised to provide information concerning the effect of the Chinese legal environment. However, we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law. The content of this article is intended to provide a general guide to the subject matter.
 The Notice on Relevant Issues in Expanding Pilot Projects for Settlement in Renminbi in Cross-border Trade was issued jointly by the People's Bank of China, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, State Administration of Taxation and the China Banking Regulatory Commission on 17 June 2010.
 The 20 provincial-level regions are Shanghai, Guangdong, Beijing, Tianjin, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Jiangsu, Zhejiang, Fujian, Shandong, Hubei, Guangxi, Hainan, Chongqing, Sichuan, Yunnan, Tibet and Xinjiang.
 The Measures for the Administration of Pilot Projects for Settlement in Renminbi in Cross-border Trade , issued by the same six entities that issued the Notice on 1 July 2009 and the Detailed Implementing Rules for the Measures for the Administration of Pilot Projects for Settlement in Renminbi in Cross-border Trade, issued by the People's Bank of China on 3 July 2009.
 The 16 provincial -level regions and cities include the same regions and cities as the 20 provincial-level regions, less Jilin, Heilongjiang, Tibet and Xinjiang.
 The border areas are Inner Mongolia, Liaoning, Jilin, Heilongjiang, Guangxi, Yunnan, Tibet and Xinjiang.
 These transactions are to be settled under a different set of rules issued by the Ministry of Finance and the State Administration of Taxation on 29 March 2010: the Notice on Pilot Projects in Granting Tax Refunds (Exemptions) for Settlement in Renminbi of General Trade and Small Border Trade Exports in Border Areas.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.