FACTBOX-China speeds up yuan's global ascent

BEIJING Aug 23 (Reuters) - China has accelerated a programme to gradually internationalise its currency, encouraging greater use of yuan CNY=CFXS in settling trade and giving foreigners more avenues for investing their yuan holdings.

Along with boosting the currency's global profile, these steps also mark progress towards making the yuan fully convertible, an objective which Beijing first announced in 1993.

China had been moving only languidly in that direction. Although it opened its current account in 1996, all trade was denominated in dollars or other foreign currencies until last year.

But since the global financial crisis in late 2008, a steady stream of policy initiatives have pushed the yuan CNY= much further along the path to internationalisation and convertibility.

China is expanding the yuan's profile beyond its borders, part of a broader strategy for gaining greater clout in international, political and economic affairs. But it is also proceeding cautiously, fearful of an influx of capital that might accompany full convertibility and destabilise its economy.

Here is a look at what China has done, and at what it might do next. (For a related analysis: [ID:nTOE66200C])

GRADUAL INTERNATIONALISATION, 2008-2009

* July 2009: China launches a pilot programme to allow exporters and importers in Shanghai and four other regions to use yuan for settling trade with Hong Kong and southeast Asian countries.

* June 2009: HSBC is the first foreign bank to issue yuan-denominated debt overseas, selling a 1 billion yuan two-year bond in Hong Kong. Bank of East Asia follows a week later.

* March 2009: Zhou Xiaochuan, China's central bank governor, writes in an essay that the world should make the Special Drawing Right, the IMF's unit of account, a new global reserve currency. His comments are seen as a sign that China wants to see the dollar eventually displaced as the world's leading currency.

* December 2008: At the height of the global financial crisis, China signs a bilateral currency swap deal with South Korea worth 180 billion yuan. It is the first time that China pledges to extend yuan to a foreign central bank.

Over the next few months, China launches five more bilateral currency swaps, totalling 470 billion yuan, with central banks from Hong Kong to Argentina.

MORE RAPID INTERNATIONALISATION, 2010

* August 2010: U.S. fast-food group McDonald's becomes the first non-financial foreign firm to sell yuan bonds in Hong Kong with a $29.5 million issuance. [ID:nTOE67I088]

* August 2010: China allows the yuan to be traded against the Malaysian ringgit MYR= in the onshore market. Although the sixth currency to trade against the yuan, it is only the second whose rate is set by dealers' bids, as opposed to dollar cross-rates. [ID:nLDE67H175]

* August 2010: The Chinese central bank says it will allow yuan accumulated overseas through trade settlement or central bank swaps to be funnelled back into the domestic interbank bond market, opening the capital account a little bit wider. [ID:nTOE67G06R]

* July 2010: China announces a 150 billion yuan currency swap with Singapore, the eighth such deal since the end of 2008. [ID:nTOE66M03V]

* July 2010: China amends its yuan clearing arrangements with Hong Kong to allow the sale of a far greater range of yuan-denominated products in the territory and to let companies buy or sell yuan there without limits. [ID:nTOE66I02Q] PDF on internationalising the yuan: r.reuters.com/zuk63n

* June 2010: China vastly expands a pilot programme to allow for imports and exports to be settled in yuan, extending the scheme to all of its trading partners. [ID:nTOE65G079]

WHAT'S NEXT?

China has said that it will further liberalise its capital account in a "selective" manner, but has also said that there is no timetable for making the yuan fully convertible. Some analysts see the goal of turning Shanghai into a global financial centre by 2020 as an effective deadline for convertibility.

In the near term, here are some steps that Beijing might take:

* Allow banks and fund managers in Hong Kong to invest offshore yuan deposits in mainland stock markets in a scheme known as "mini-QFII" (the original Qualified Foreign Institutional Investor programme awards quotas to foreign firms to invest in China's capital markets).

* Permit more banks and companies to issue yuan-denominated bonds in Hong Kong.

* Launch a closely regulated yuan deliverable forwards market in Hong Kong. To date, offshore yuan forwards are all non-deliverable.

* Allow foreign companies to issue shares in China. This would likely start with the so-called red-chip firms, major Chinese enterprises that are registered and listed in Hong Kong.

* Experiment with a wider opening of the capital account in designated areas, such as Shanghai.

* Push to have the yuan included in the basket of currencies that forms the IMF's Special Drawing Right. (Reporting by Zhou Xin and Simon Rabinovitch; Editing by Mathew Veedon)