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Print Edition> Business
UPDATED: December 17, 2010 NO. 51 DECEMBER 23, 2010
A New Way to Trade
China expands yuan settlement in trade with Russia, while allowing the yuan to trade against the ruble

Using the yuan for cross-border trade settlement will constitute a restraint on the dollar and U.S. monetary policy behavior and such restraints are necessary after the U.S. Federal Reserves renewed the quantitative easing policy, said Ding Zhijie.

Limited impact

But the direct yuan-ruble settlement will not pose a direct challenge to the U.S. dollar as the major settlement currency for international trade, said Li Fuchuan.

The scale of bilateral trade between China and Russia is not large enough to have a significant effect on the U.S. dollar's dominance in international trade settlement, he said.

Trade volume between China and Russia is comparatively small, accounting for only one seventh of China's current total trade volume, although the two economies are complementary in many aspects such as commodities, technologies, labor, resources and industrial structure.

Meanwhile, yuan-ruble transactions have been conducted in the two countries' border areas for several years, but the amount settled in the ruble and the yuan has been minute compared with the total volume of bilateral trade. Statistics from the Central Bank of Russia showed Sino-Russian trade reached $38.8 billion in 2009, but trade deals settled in the ruble amounted to15.5 billion rubles ($504 million) and those settled in the yuan only totaled 53 million yuan ($7.96 million).

Only 35 to 50 major importers in Russia are interested in the direct settlement, Vladimir Portyakov, Deputy Director of the Institute of Far Eastern Studies of the Russian Academy of Sciences told the Beijing-based Financial News.

Russian dealers are unwilling to use the yuan to settle payments largely because the yuan is not fully convertible and the arrangement excludes energy commodities, China's major imports from Russia, Portyakov said.

Portyakov also said Russian economists are concerned about the Russian economy not being able to digest large amounts of the yuan if the yuan is used in settling energy-related transactions. But he suggested both countries gradually push forward the arrangement.

"China can settle some energy imports of small amounts with the yuan and Russia can use their yuan reserves accumulated from energy exports to import consumer goods from China," he said.

"Given another couple of years, dealers accustomed to using the dollar will see the advantages of direct yuan-ruble settlement such as convenience, decreased transaction costs and the yuan's reliability," Ding Zhijie said.

Yuan Settlements in Cross-Border Trade

The Chinese Government announced in December 2008 to allow exporters in two economic powerhouses—Guangdong Province and the Yangtze River Delta (including Shanghai and parts of Zhejiang and Jiangsu provinces)—to use the yuan to settle deals with traders in Hong Kong and Macao, and those in southwest China's Guangxi Zhuang Autonomous Region and Yunnan Province to use the yuan to trade with their partners in ASEAN (Association of Southeast Asian Nations) countries.

Soon after the announcement, China signed agreements with eight neighboring countries, including Viet Nam, Myanmar, Russia, Mongolia, Cambodia, South Korea, Kazakhstan and Nepal, to allow the use of the yuan in settling cross-border trade payments.

The government decided on April 9, 2009 to launch the trial program of yuan settlements in Shanghai and four cities of Guangdong Province.

The yuan settlement pilot program was expanded June 22, 2010, to Beijing, Tianjin, Chongqing, 11 provinces and four autonomous regions.

Meanwhile, the regions where Chinese exporters can use the yuan to settle trade agreements were extended from the original ASEAN members, Hong Kong and Macao to the rest of the world.

Sino-Russian Direct Trade Settlements

March 5, 1992 The Sino-Russian intergovernmental agreement on bilateral economic and trade relations is signed, providing a legal framework for bilateral cooperation between the two countries.

2002 China's central bank, the People's Bank of China, and the Central Bank of Russia sign an agreement on interbank trade settlements in their border areas.

2003 Trial programs of direct yuan-ruble settlement commence in Heihe of Heilongjiang Province and Blagovescensk, capital of Amur, Russia.

2007 The central banks of both countries sign an agreement on using the yuan and the ruble in cross-border trade settlements, expanding the practice to cover the entire border and tourism and related services.

November 23, 2010 The two countries lift restrictions on using the ruble and the yuan in cross-border trade settlements, and amended the 1992 intergovernmental agreement on bilateral economic and trade relations.


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