Wider Doorway for Yuan Trade Settlement

Chinese companies trying to avoid currency exchange rate risks found new reasons for hope when a top official from China's central bank recently hinted at a future expansion for cross-border trade settlements based on the yuan.

The message from the bank's vice director for the Second Division Monetary Policy office, Li Bo, was delivered January 21 at the eighth annual China Import and Export Enterprises Conference.

"Under the premise of controlling risk, the central bank is currently researching progressive expansions for experiments in cross-border trade using the yuan," he said.

These would include "trials within the range of domestic urban areas and overseas regions, and increasing the number of pilot enterprises," Li said, without announcing a timetable.

The nation's pilot program for cross-border yuan trade settlement was launched last July, giving domestic and foreign traders a new means for navigating global currency issues. Many had experienced hardships when, in the course of the global financial crisis, customers canceled orders and major currencies for international settlements such as the U.S. dollar and euro fluctuated.

The program's boundaries mean that demands from many enterprises seeking yuan settlements have not been met, leading to calls for an expansion. Meanwhile, however, interest among foreign companies has been less than enthusiastic in part due to banking and yuan convertibility issues.

Century Weekly has learned that central bank plans to work with six ministries, including the finance and commerce ministries, to promote an expansion. Technical issues have already been addressed, raising hopes for action soon.

Gradual Growth

Chosen as the pilot's trial cities were Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai. In addition, 365 enterprises qualified as pilot enterprises. The program affected trade with companies in Hong Kong, Macau and members of the Association of Southeast Asian Nations (ASEAN).

Data shows that yuan settlements have been minuscule compared to total trade volume in trial areas.

Between July 6, when the Chinese government announced program rules, and January 22, the cross-border trade settlements exceeded 4.5 billion yuan – far less than expected.

China Construction Bank Vice President Fan Yifei admitted in mid-December that neither the yuan levels nor the total volume of transactions had reached forecasted targets.