This is the start of China moving away from US dollar.

China Begins Pilot Program to Settle Trade in Yuan (Renminbi)

http://ceconomy.blogspot.com/

SHANGHAI — China has officially opened a pilot program to allow companies to settle imports and exports in renminbi in selected regions, marking a major step toward eventually internationalizing the Chinese currency.

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

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

Hong Kong also kicked off the long-awaited yuan settlement program on Monday.

HSBC said it completed its first renminbi trade settlement with Shanghai and its first cross-border credit transaction.

“Trade settlement in yuan will make it more convenient for both Chinese and foreign firms who conduct China-related exports and imports,” said Xu Weimin, chairman of Shanghai Silk Group, who sold goods to China Products Holdings, a Hong Kong company, in one of the contracts signed on Monday.

“It will help both of them save costs,” Mr. Xu told Reuters on the sidelines of a ceremony to mark the start of renminbi settlements. “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 after China revalued the renminbi by 2.1 percent against the dollar in July 2005. The renminbi has appreciated by a further 19 percent against the dollar since then.

In announcing the renminbi settlement program 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 program would also be used between the Association of South East Asian Nations and Yunnan and Guangxi regions in southern China before it is launched elsewhere.

Although the total amount in the first batch of deals signed on Monday was small, less than 14 million renminbi, or $2 million, state media said around 400 Chinese companies had already won approval to conduct renminbi business and predicted that the program would have huge potential.