Business

Tuesday July 7, 2009

Trial yuan trade settlement scheme launched


SHANGHAI: China has officially launched a pilot programme to allow companies to settle imports and exports in yuan in selected regions, marking a major step towards eventually internationalising the Chinese currency.

Three pairs of Shanghai companies with their Hong Kong and Indonesian counterparts signed contracts yesterday to be the first to settle business deals in yuan. Executives said the move would save costs and avert exchange rate risks.

Bank of China and Bank of Communications were the first lenders to clear transactions in yuan, considered a lucrative business given the country’s expanding economy and huge presence in international trade.

Hong Kong also kicked off the long-awaited yuan settlement scheme yesterday. HSBC said it completed its first yuan trade settlement with Shanghai and its first cross-border yuan credit transaction.

“Trade settlement in yuan will make it more convenient for both Chinese and foreign firms that conduct China-related exports and imports,” said Xu Weimin, chairman of Shanghai Silk Group Co, which sold goods to Hong Kong’s China Products Holdings Ltd in one of the contracts signed yesterday.

“It will help both of them save costs,” Xu told Reuters on the sidelines of a ceremony to launch yuan settlement. “For Chinese companies, it also has the function to avert exchange rate risks.”

Caught off guard and partly lacking the skills to hedge against foreign exchange volatility, many small Chinese exporters have closed shop after China revalued the yuan by 2.1% against the dollar in July 2005. The yuan has appreciated by a further 19% against greenback since then.

In announcing the yuan settlement scheme in April, Beijing said it would initially be confined to certain areas, including Hong Kong and Macau, outside mainland China, and to Shanghai and China’s key export province of Guangdong in the south.

The scheme would also be trialled between the Asean and Yunnan and Guangxi regions in southern China before it is launched elsewhere.

Although the total amount in the first batch of deals signed yeaterday was small, less than 14 million yuan (US$2mil), state media said around 400 Chinese companies had already won approval to conduct yuan business and predicted huge potential.

Bank of China alone had signed contracts with dozens of firms to help settle business in yuan, its president Li Lihui said.

The launch of the business in Shanghai echoed Beijing’s decision this year to make the Chinese financial hub a global international centre by 2020, in what the government said would reflect the rising status of China’s economy and its currency.

China has talked about a diversification in the global reserve currency since March, even suggesting a super-sovereign reserve currency to reduce the domination of the US dollar, which it said had worsened the financial crisis. — Reuters


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