Buyers and sellers at the 105th Canton Fair in south China's Guangdong Province are no longer restricted to using the US dollar to settle their deals. This year they can also use the yuan, China's currency.

Last week, the State Council (Cabinet) gave the greenlight to five major trade cities -- Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan -- to use the yuan, also known as Renminbi, as an option to settle international trade deals.

Yuan edges into place as int'l trade currency [CFP]

Last December, pilot programs were announced to allow the country's two economic powerhouses, Guangdong Province and the Yangtze River Delta (including Shanghai), to use the yuan to settle trade deals with the two special administrative regions of Hong Kong and Macao.

A similar arrangement has been proposed for exporters in Guangxi Zhuang Autonomous Region and Yunnan Province in south China, which will be allowed to use the yuan to settle trade with ASEAN (Association of Southeast Asian Nations) members starting this year. Details of that program are yet to be disclosed.

China has also been arranging currency swaps with trading partners to bypass the US dollars in trade settlements. Since mid-December, the Chinese mainland has signed currency swap contracts worth 650 billion yuan (US$95.6 billion) with central banks in Hong Kong, the Republic of Korea, Malaysia, Belarus, Indonesia and Argentina.

These swap accords allow other overseas central banks to sell yuan to local importers who want to buy Chinese goods.

It is believed these moves will benefit manufacturers and traders at home and abroad by reducing their exposure to exchange-rate volatility, increasing liquidity in foreign trade and reducing consumer burdens.

At the Canton Fair, which runs from April 15 to May 7 in Guangzhou, the most immediate effect of the trial use of Renminbi will be lower exchange-rate risks.

Geng Wei, general manager of Shanghai Forever Import and Export Co., Ltd., which is exhibiting at the fair, said the company was "willing to settle trade in yuan", as it suffered from exchange-rate fluctuations in the US dollar and euro last year.

Cui Xiaolong, general manager of Honny Power based in Dongguan,Guangdong, said that in the second half of last year when exchange rates fluctuated wildly, a deal with a partner in South Africa, which was agreed in dollars, was delayed for two months. "The postponement could have been avoided if yuan were used as the settlement currency," Cui said.

Trade partners of Chinese enterprises would also benefit from greater use of yuan, said Zhao Jinping, a senior researcher with the Development Research Center of the State Council.

The regional acceptance of yuan would cut transaction costs for trade deals with non-USdollar countries and regions, since these deals bypassed the US dollar, said Zhao.

Yuan edges into place as int'l trade currency [CFP]

Datuk Yong Ah Pwi, head of Malaysia-China Chamber of Commerce, who attended the Canton Fair, said Malaysian companies pinned great hopes on the use of the yuan with Chinese trading partners.

He said annual bilateral trade between Malaysia and China had exceeded 50 billion US dollars. Expanding use of Renminbi in trade settlement between the two economies, which were mutually complementary in nature, would allow manufacturers from both sides to reduce costs and explore new trade areas.

Professor Xiao Yao, of the research center of foreign trade and international economic cooperation under the Guangzhou-based Guangdong University of Foreign Studies, said, "Along with future world economic recovery, developed nations are bound to recall a large amount of capital from emerging markets. Then China will have to depend on itself to maintain sufficient fluidity.

"The current acceleration of the yuan's international acceptance will no doubt reduce burdens on China," Xiao predicted.

However, many traders at the Canton Fair reckoned it would take years to expand the yuan's use.

Denis Keet, general manager of foreign trade division of Indonesian firm Dyll, said use of the US dollar for trade settlement was a habit that was difficult to abandon.

He suggested that Chinese traders need to demonstrate the advantages of using the yuan.

(Xinhua News Agency April 16, 2009)