The central bank launched a trial program to allow qualified enterprises to settle their overseas direct investments in the yuan, or renminbi, a move expected to extend the Chinese currency's global reach and ease excess domestic liquidity.

In a notice issued on January 13, the central bank said businesses that were allowed to settle cross-border trade in the yuan would also be permitted to conduct direct investments, including mergers and acquisitions, outside China using the yuan.

In July 2009, China started a pilot scheme to promote yuan settlement in cross-border trade in five cities, and widened the program to cover 20 provinces and municipalities in June 2010.

Further, domestic banks could offer those enterprises loans for their overseas investment, and their investment profits could be remitted back to China in the yuan, according to the new rules that took effect on January 6.

The program is intended to push forward internationalization of the yuan and provide better support for Chinese enterprises expanding globally, said the central bank.

The move would provide a channel for domestic capital to flow out, taking inflationary pressures off the country, said Guo Tianyong, Director of the Research Center of China's Banking Industry at the Central University of Finance and Economics.

Meanwhile, it is bound to smooth the way for Chinese companies to venture abroad and help them avert foreign exchange risks, said Liu Dongliang, a senior analyst at the China Merchants Bank.

With deep pockets at their disposal, expansion-minded Chinese firms are quickening the pace of establishing a cross-border presence. Overcapacity at home and a stronger yuan are also forces pushing Chinese capital offshore.

But it remains to be seen how the program will work as many foreign companies may be reluctant to accept the yuan, he said.