Bank of China announces yuan trade deal with HK's HSBC

BEIJING, July 4 (Reuters) - China's largest foreign exchange bank, the Bank of China (601988.SS)(3988.HK), has reached a yuan trade settlement agreement with HSBC (0005.HK)(HSBA.L) bank in Hong Kong, taking advantage of new rules allowing such deals.

Under rules announced this week, foreign banks will be able to buy or borrow yuan from Chinese mainland lenders to settle trade in Hong Kong and Macau under a pilot scheme. [ID:nPEK31144]

The central bank chiefs of China and Hong Kong signed a memorandum on Monday, paving the way for the scheme, which analysts say is a move to greater international use of the yuan, also called the Renminbi. [ID:nHKG363557]

On Saturday, the Bank of China (BOC) announced on its website (www.boc.cn) that it reached agreements with HSBC and BOC's own separately listed Hong Kong unit (2388.HK) to carry out yuan trade transactions.

"With the signing of these agreements, the Bank of China can begin carrying out cross-border settlements and clearances using Renminbi funds with these banks," said the statement.

It did not detail the size or other details of the deals.

Last month, HSBC also became the first foreign bank to sell yuan-denominated bonds, raising funds for its mainland operations at a time when China is trying to increase acceptance of its currency in the region.

The new rules make clear that China will be checking 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. (Reporting by Jessica Shi and Chris Buckley; Editing by Valerie Lee)