China Launches Pilot Program for Trade Settlements in Yuan

Beijing, China (PressExposure) July 15, 2009 -- Only July 6, 2008 China officially began a pilot project to allow companies settle trade in the yuan, which is seen as an essential step towards enhancing the status of the Chinese currency and shoring up exports to boost the economy. Three Shanghai firms who are part of the pilot program become the first to settle cross-border trade using the yuan by signing contracts worth more than 14 million yuan (US$2.05 million) with companies in Indonesia and Hong Kong.

The program's launch in Shanghai reflected the central government's policy of building the city into a global financial hub by 2020 through a series of financial innovations and market reforms. Shanghai Mayor Han Zheng commented that "The yuan-settlement trial in Shanghai has great significance for the city's plan to become an international financial center...the program will also benefit cities in the Yangtze River Delta region with sustained and healthy trade growth."

Under the pilot program, companies in Shanghai and four cities in the Guangdong Province are allowed to settle trade in yuan with businesses in Hong Kong, Macau and the 10-member Association of Southeast Asian Nations (ASEAN). Before the pilot program, Chinese companies were required to convert yuan into US dollars or other currencies to settle international trade. However, since the onset of the current global economic crisis, the dollar and euro have been fluctuating so wildly that Chinese government regulators felt an urgent need to offer tools to help domestic firms counter trade risks.

Scott Garner of Lehman Tax & Accounting commented that "this pilot program which allows Chinese companies to conduct foreign trade using RMB (renminbi) is certainly one of the most interesting policy changes we have seen in a long time. As everyone knows, China has quite strict foreign exchange controls in place that often make it cumbersome to settle debts in different currencies. And until recently, the State Administration of Foreign Exchange (SAFE) showed no indication that it was willing to relax its strict policies. This pilot program really shows the drastic measures the government is willing to consider to fight the impact of the economic crisis on China's economy, particularly its export economy. While this is perhaps a first step towards a loosening of foreign exchange policies in general, it is far too soon to tell whether these are merely temporary measures to fight the economic crisis or whether these policies will continue and expand after the crisis is over."

Lehman Tax & Accounting is a prominent Chinese CPA and business advisory firm with offices in Beijing, Shanghai, Shenzhen, Hong Kong, and Mongolia.

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Press Release Submitted On: July 14, 2009 at 10:47 pm
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