Early Days

    Following the designation of Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan as pilot areas for general trans-border trade via RMB settlements, economists have not ruled out the possibility of their expansion to the whole country.

    Shanghai, China's financial center, has been waiting three years for this news. In November 2006, Shanghai announced its 11th Five-Year Plan for building an international financial center, which specified the following aims: "positively striving to use the RMB in international settlements and setting up an office for converting small amounts of foreign currency"; and "over five years, researching the RMB's circulation and use as a reserve currency in neighboring countries, and exploring and developing the global withdrawal and management of RMB."

    "Trans-border settlements in RMB will ultimately establish Shanghai's status as an international financial center," claims Yin Jianfeng, director of the Research Center of Structured Finance at the Institute of Finance and Banking, Chinese Academy of Social Sciences.

    Success in introducing RMB settlements lies in client acceptance. During the China Import and Export Fair this year, although many Guangzhou enterprises were looking forward to settling accounts in RMB, without exception they all quoted prices in US dollars. "As an export enterprise, we are certainly willing to use the RMB. What counts is whether import enterprises in other countries like and accept it. Foreign exchange banks in other countries or regions must have adequate reserves of RMB, and this condition is currently hard to meet," explains Liu Keping, director of the Marketing Management Department, Hefei Royalstar Sanyo Electric Appliance Co., Ltd.

    Hong Kong regards the piloting of RMB settlements as a good chance to stabilize its financial position. "As a matter of fact, the RMB in HK has become a transaction currency second only to the Hong Kong dollar," says Yi Xianrong, who has worked in the city for many years. With the increase of RMB in circulation, the Special Administrative Region is set to become an important offshore center of RMB trade.

    The biggest change in adopting RMB settlements will be to banks' back office accounting. Many institutions in Guangdong Province have already started testing online payment settlement systems to guarantee a smooth transition when business commences. Furthermore, commercial banks are busy with client selection. Guangdong will choose 300 enterprises to participate in the RMB settlement pilot project. "The targets are mainly clients that have frequent trade with HK," says an official in the Guangzhou Branch of the Industrial and Commercial Bank of China.

    The Bank of Communications and the Bank of China are the Shanghai institutions participating in the experiment. Even before the announcement the Shanghai branch of the Bank of Communications had begun to handle trans-border trade settlements in RMB for the Shanghai Electric Group and Minmetals Development Co., Ltd.

    "It should be comparatively easy to popularize RMB settlements in Southeast Asia, where the RMB is already accepted. However, it will be more difficult in Europe and the U.S.," says Niu Weimin, deputy general manager of Shanghai Minmetals Company.

In Hong Kong the RMB has become a transaction currency second only to the HK dollar.