China has eased strict cross-border currency rules for 13 multi-national firms including Samsung <005930.KS> and Shell in a scheme that further cranks open its tightly controlled capital account, financial sector sources told Reuters.
The experiment, which has not been publicly announced by the government, gives firms freedom to shift funds worth up to 30 percent of their invested capital in China across its borders, bankers directly involved in the scheme said.
The move responds to growing demand from international firms operating in China for freedom to use soaring stores of yuan, also know as the renminbi, to boost the efficiency of their management of capital while keeping speculative pressure at bay.
"It's a way of opening up the capital account which helps companies deal with the real flows of the economy," Michael Vrontamitis, head of product management of transaction banking for East Asia at Standard Chartered in Hong Kong, told Reuters.
"Those are the real flows. These companies are not speculating on the currency," said Vrontamitis, whose bank is handling transactions for Shell under the pilot program.
Six of the firms involved are foreign, eight company executives and bankers with knowledge of the matter said. They are Shell, Samsung, Intel Inc , Alcatel-Lucent , Schneider Electric and Caterpillar Inc .
The other seven companies are Chinese state-owned enterprises: Sinochem Corp, China Minmetals Resources <1208.HK>, China Shipping Group, COFCO Group , Baosteel Iron & Steel <600019.SS>, Shanghai Electric Group Co. <601727.SS> and China Eastern Airlines <600115.SS> <0670.HK>.
Some of the names of participating companies and banks have been reported in the Chinese media, but the full list has not been disclosed. The currency regulator declined to comment.
At least four banks, including Standard Chartered <2888.HK>, HSBC <0005.HK> , Citigroup Inc and Bank of China <3988.HK>, will help Beijing run the test, called the "Foreign Currency Centralized Management Pilot", bankers said.
"This is meaningful even though it's just 13 companies. It's a pragmatic approach in liberalizing the capital account," said Zhang Zhiwei, chief China economist with Nomura in Hong Kong.
"They want to push renminbi internationalization and to do that, they need to get the renminbi somewhat convertible and the capital account somewhat open."
BREAKING DOLLAR DOMINANCE
Reuters reported earlier this month that the People's Bank of China (PBOC) would use swelling foreign holdings of around 1 trillion yuan ($160 billion) to help drive the relaxation of capital controls to make the currency basically convertible by 2015 or 2020 at the latest.
China wants to break the dollar's dominance as the key currency for the settlement of international trade and to see the yuan accepted as a reserve asset by global central banks.
Establishing the yuan as a reserve asset broadly requires the currency to be accepted as an international settlement currency, to be a store of value and to be freely convertible.
A fully convertible currency would also be an important step in China's stated goal of establishing Shanghai as a bona fide international financial centre by 2020.
But while direct yuan settlement of cross-border trade has climbed to about 12 percent of China's total - around 2.9 trillion yuan in 2012 - Beijing's campaign to gain greater acceptance of the renminbi as an international transaction currency has run into headwinds in corporate boardrooms, given barriers to trading and the costs of holding it.
The experiment - which began in December in Beijing and Shanghai and is led by China's currency regulator, the State Administration of Foreign Exchange, which manages the country's $3.3 trillion foreign exchange reserves - is designed to address corporate reticence.
The pilot allows firms to join one of three test programs that simplify capital flows in and out of China.
One enables firms to "sweep" money in or out of China with a one-off approval from the regulator, instead of requesting approvals for each transaction.
Another allows "cross border netting" so a company in China that has lent to, or borrowed from, a firm outside China can settle the two transactions on a net basis, instead of paying and receiving cash in two transactions on a gross basis.
A third test allows a unit of a firm to make payments or collections on behalf of all other units, meaning a company with 30 units in China can now use one bank account instead of 30.
Firms say freer flow of funds across China's borders boosts efficiency and cuts costs. Samsung said it expected to save about $10 million a year from participation in the experiment.
Although the test is not fully operational as some firms are still ironing out details, positive feedback from others not part of the experiment has led Beijing to start shortlisting participants for a second phase of the test, two bankers said.
A PBOC study last year that measured China's capital account openness against the 40 items of convertibility tracked by the International Monetary Fund showed no item was fully convertible, economists from Citi said in a note this week.
But China has made repeated pledges to roll back capital controls that are unmatched by other major emerging economies except India, and are likely to be removed at a rising speed in the next five years, the Citi client note said.
Indeed, Central Bank Governor Zhou Xiaochuan said at the bank's annual news conference this week that authorities would continue to push ahead with market reforms.
Sources have told Reuters that Zhou, originally slated for retirement, is set to stay on as the central bank's chief to free and deepen China's financial markets.
Letting firms transfer cash in and out of China more easily allows China to persuade companies to move their treasury operations to Beijing or Shanghai in future, bankers said, rivaling Hong Kong or Singapore as regional financial centers.
"One of the ideas is possibly to replicate the treasury centre concept that is currently adopted in Singapore or Hong Kong," said Yigen Pei, head for transaction services for Citi in China.
(Reporting by Koh Gui Qing; Editing by Nick Edwards and Alex Richardson)