The People's Bank of China (PBOC) will allow companies in the city of Qianhai, a special economic zone in Shenzhen near Hong Kong, to borrow yuan from banks in Hong Kong, with tenors and interest rates to be set independently, according to the statement.

"The cross-border renminbi loan business will give Qianhai important financial support and at the same time accelerate the use of cross-border renminbi," the statement said.

The announcement also said that the move would increase the scale of Hong Kong banks' yuan loan services and invigorate liquidity in the offshore yuan market.

The Hong Kong Monetary Authority (HKMA) issued a statement on Friday welcoming the announcement, saying it would improve usage and circulation of yuan between Hong Kong and the mainland.

"This step will help Shenzhen's Qianhai utilize Hong Kong's mature offshore yuan services platform to support its own development," the HKMA said.

'MINI-HONG KONG'

Market observers have been waiting to see how aggressively Beijing moves in the Qianhai test bed, which some have dubbed a "mini-Hong Kong".

The project was announced in June as Hong Kong marked the 15th anniversary of its return to China, but at that time there were few specifics about how liberalised the zone would actually be.

Questions include which mainland firms will be allowed to locate in Qianhai, how freely funds will be allowed to flow in and out of the zone and what other restrictions might be applied.

The announcement said that companies registered in Qianhai and those "operating or invested in" Qianhai will be permitted to participate in the cross-border loan programme.

Economists say the biggest challenge for authorities will be to prevent companies from exploiting the zone, from inside or outside, because of the easier terms on capital account transactions.

This would require regulators to take steps to "ring-fence" the area to prevent the zone from creating distortions in the rest of the country, a difficult task.

FOREIGN ENTHUSIASM ABATING?

On the other hand, Beijing still wants to promote greater usage of the yuan overseas, but foreign enthusiasm showed signs of abating somewhat in 2012 after several years of explosive growth.

Material from the HKMA showed that payments from Hong Kong to mainland China surpassed those from the mainland to Hong Kong under yuan trade settlement during the past two quarters, implying declining interest among foreign corporates for holding yuan.

Qianhai promises to be an exclusive locale with preferential corporate tax rates of just 15 percent, compared with the standard 25 percent on the mainland, and Hong Kong-like services. Government researchers have said the bar will be set high for mainland companies that want to operate there.

China tried an experiment similar to Qianhai in the northern port city of Tianjin. It won the cabinet's blessing in 2006 to test yuan convertibility in Binhai, a district in the city.