China has introduced a new settlement system which allows North Korean business to open bank accounts in China and settle business transactions in Yuan, the Nikkei reported on Sunday.

The introduction of the new settlement system came right after the meeting took place between Lee Ryong Nam, Vice Minister of Foreign Trade in North Korea and Liu Xiaoming, China's ambassador to North Korea to discuss North Korea-China economic cooperation on March 27.

The Nikkei reported that the People’s Bank of China and the State Administration of Foreign Exchange of China created a new regulation of the trade settlement system related to North Korea and already notified about the system to financial institutions located where trade with North Korea is very active such as Dandong City of Liaoning Sheng and Yanbian Korean Autonomous Prefecture of Jilin Province.

It is unusual for China to adopt a Yuan payment system for a specific country. Under the pretext to ease border trade, China has in fact eased economic sanctions on North Korea imposed after its October 2006 nuclear tests regarding remittance and account opening, the Nikkei said.

With the adoption of the system, North Korean people and companies can open Yuan bank accounts within China after some formalities and use the accounts for trade settlement with their Chinese business partners. Accordingly, North Korea is now able to buy foreign currencies such as dollars and euros with its Yuan income from trade. In addition, North Korea can legally bring in foreign currencies or send them to third countries.

North Korean companies used to have difficulties of making a trade settlement with China in cash or by barter since the U.S. enacted financial sanctions on North Korea and China imposed economic sanctions regarding remittance and bank accounts after North Korea’s nuclear tests. However, China too suffered from the sanctions as the amount of Yuan smuggled into North Korea has skyrocketed proportional to the increasing volume of trade between North Korea and China.

China is North Korea’s biggest trade partner. Last year, the total volume of trade between North Korea and China amounted to about 2 billion dollars.

The new settlement system will help reinvigorate the trade between two countries. However, the system can cause concerns at the Six Party Talks as it lowers the bargaining power needed to pressure North Korea to give up its nuclear programs, the Nikkei said.

Meanwhile, the People's Government of Yanbian Korean Autonomous Prefecture announced last February that Jilin Province would allow North Korean people and companies operating in China to open Yuan bank accounts for trade purpose starting with February 20, 2008.