China's State Administration of Foreign Exchange said Friday that the country saw rapid growth in cross-border renminbi trade settlements last year as more Chinese and foreign-funded companies chose to pay and be paid in renminbi, the Chinese currency.
Total cross-border renminbi transactions hit $58.7 billion in 2010, 13 times the amount of one year earlier. The increase is attributed to China's continued efforts to make the currency more international, the country's foreign-exchange regulator announced in its 2010 China international payments report.
The government decided in June last year to expand cross-border renminbi trade settlement trials from four domestic cities in Shanghai and Guangdong to a total of 20 provincial regions.
Overseas, China decided to have cross-border renminbi trade settlements with all countries and regions instead of the piloting Hong Kong and Macao regions and ASEAN nations.
The expanded pilot scheme also allowed 67,724 export-oriented companies in China to settle trade transactions in renminbi. The number of such companies was 365 in 2009.
The Chinese mainland's cross-border renminbi trade settlements with Asian countries and regions totaled $53.4 billion last year, which accounted for 91 percent of China's total amount in this regard.
Foreign exchange reserves
China's foreign exchange reserves grew by $469.6 billion last year to a record high of $2.869 trillion, thereby cementing its position as the world's largest country in terms of foreign exchange reserves, according to the report.
The regulator said that China's current account surplus reached $305.4 billion last year, a rise of 17 percent from one year earlier. Meanwhile, the country's capital and financial account surplus, which is a measure of net capital inflows, amounted to $226 billion.
The regulator said it would work to reduce trade imbalances this year while slowing the influx of hot money.
The SAFE warned that speculative capital inflow to the world's fastest-growing major economy is likely to increase this year due to the continued recovery of the global economy and the interest rate and exchange rate gaps between China and other countries.
Rising hot money inflow might hurt China's financial stability and add to inflationary pressures. The country has been grappling with high consumer price index figures since last year.
Consumer prices in China rose 4.9 percent from one year earlier in February, compared with the government target limit of 4 percent for the full year.
Yuan exchange rate flexibility
The flexibility of China's renminbi exchange rate became stronger last year, the SAFE said in the report.
By the end of December, the central parity rate of the yuan had gained 25 percent against the US dollar since China launched the renminbi exchange rate reform in 2005.
The central parity rate is the daily mid-point around which the spot rate is allowed to trade up or down by as much as 0.5 percent.
The People's Bank of China fixed the yuan's mid-point against the US dollar at a record high of 6.5527 on Friday.
The yuan rose against the Hong Kong dollar, the euro and the pound last year by as much as 3.5 percent, 11.2 percent and 7.4 percent respectively. However, it fell 9.2 percent against the Japanese yen during the same period.
"It shows that the yuan's flexibility has improved after China dropped the currency's dollar peg in June last year. The yuan fluctuated and didn't move in just one direction," the report said.
China has pledged to reform its exchange rate formation mechanism in a gradual and controlled manner. Yi Gang, vice governor of China's central bank, said Thursday that the country would continue to increase the flexibility of its exchange rate regime this year.