Yuan may be fully convertible in "3-5 yrs" (2)

Li added the practice of cross-border yuan-denominated trade settlement will be extended throughout China this year.
Li said the central bank is also working on rules to allow yuan-denominated foreign direct investment.
China's foreign trade volume could hit $3.9 trillion this year, with yuan-denominated trade settlements reaching $200 billion - 5.1 percent of the total trade - up from about 2.6 percent in 2010, said Anthony Lin, Shanghai general manager of Standard Chartered Bank (China) Ltd on Friday.
"Based on my understanding, the move will probably allow foreign central banks to buy Chinese government bonds and the yuan through bond-issuing in Hong Kong to invest in the mainland," said Peng Wensheng, chief economist with China International Capital Corp Ltd.
"That means more capital inflows, and that will put pressure on China's monetary policy."
Lu Zhengwei, chief economist of the Industrial Bank, also said the increased cross-border use of the yuan will increase the amount of yuan in offshore accounts, opening up the possibility of speculative activities that threaten to destabilize the yuan's exchange rate.
"The yuan's increased cross-border use is a mixed blessing. I couldn't agree more that it should be conducted cautiously."
Xiang with Renmin University said the government should regulate capital inflows and outflows to prevent risks.
"It doesn't mean China will let foreign capital come and go without any restriction. It still has regulations in place to monitor capital flows, just like other developed countries do," he told China Daily.
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