China will deepen reform of its capital account and encourage more yuan cross-border transactions, the country's foreign exchange regulator said yesterday.

The State Administration of Foreign Exchange outlined its 2011 priorities in a statement on its website yesterday, which include enhancing the monitoring and analysis of cross-border capital and curbing speculative "hot money." SAFE's key message is that it will open up the capital account to ease the flow of legal capital while clamping down illegal speculative capital firmly.

China's current account, or that for trade, is fully convertible. But the capital account, or that for investment, is not fully open yet.

China is gradually and steadily reforming the capital account as that is crucial in raising the yuan into a global currency in the long run, according to analysts.

It is also necessary to open up the capital account because the cross-border trade yuan settlement program has expanded rapidly to total 506.3 billion yuan (US$76.7 billion) in 2010. The yuan accumulated offshore through the program is seeking to flow back to China legally. At the end of last year, more than 67,000 companies have joined the program that operates in 20 provinces or municipalities.

The international board on the Shanghai Stock Exchange, which may trade as early as this year, will allow foreign firms to raise funds by selling yuan-backed shares.

Five overseas firms with a total quota of 29.2 billion yuan at the end of 2010 are allowed to invest in China's inter-bank bond market.