This city will likely join the second batch of yuan-settlement trials with some neighboring trade partners to tackle the export slowdown, according to local authorities.

"We worked on the proposal for the pilot program with related departments which would be submitted to the local government and the State Council for approval," said Zhao Kangmei, vice-chairman of Shanghai Municipal Commission of Commerce (SMCC).

The State Council, the country's cabinet, last December announced it would use the Chinese currency yuan for trade payments between Guangdong province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao, an attempt to make yuan an international currency.

The Guangxi Zhuang autonomous region and Yunnan province will also be allowed to use the yuan in transactions with members of the Association of Southeast Asian Nations (ASEAN) in 2009.

"During the financial turmoil, some large engineering contract projects have suffered huge losses when being paid in US dollars, which have become more volatile amid the economic meltdown. Hence, companies are strongly clamoring to introduce Chinese currency for trade settlement," Zhao said.

Shanghai planned to make the yuan for settlement in some large projects in ASEAN, Hong Kong and Macao, as well as Russia, to lock in risks. And 18 local companies have been chosen on a trial basis, he added.

The steps are even more crucial now that Shanghai's exporters have seen their overseas trade opportunities continue to shrink.

Sha Hailin, chairman of SMCC, said the growth rate of the import and export volumes of foreign-owned enterprises in Shanghai, which are two-thirds of the city's total import and export amounts, are expected to drop 30 and 40 percent respectively this January.

"The losses on foreign exchange transactions have partly eaten into Chinese exporters' profit in foreign trade. And to use the yuan-settlement will help domestic companies shun the exchange rate risk," said Sun Lijian, a finance professor from Fudan University.

He added that the yuan will become strong when its real economy starts to recover.

"It's the best option for Chinese companies to pay and settle with yuan."

However, Sun said that as Chinese currency has yet to be settled in accordance with market demand, there're still obstacles ahead.

(China Daily January 23, 2009)