NANNING, Guangxi: The central government may soon allow companies in the southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Southeast Asia to reduce foreign-exchange risk, an official at a government-run trade fair said.

The scheme will protect exporters from swings in currencies and help promote trade with the 10-nation Association of Southeast Asian Nations (ASEAN), Nong Rong, vice secretary general at the China-ASEAN Expo, said yesterday.

"Preparations for the pilot programs are progressing smoothly," Nong told reporters in Nanning, Guangxi. The programs "should be introduced soon".

China, the world's third-biggest economy, is seeking to make it easier for overseas companies to do business in yuan and gain a bigger share of trade with the so-called Golden Triangle nations after the global recession choked sales to the US.

State leaders and government officials, including President Hu Jintao, have called for reducing its dependence on the US dollar and the creation of a new global reserve currency.

The People's Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency-swaps. On Monday, the central bank signed an agreement with Hong Kong to allow the settlement of cross-border trade in yuan.

"Some companies that were deterred by foreign-exchange risks may now seek to expand overseas as the risks have been reduced," Nong said. He declined to give an estimate of how much trade will be boosted by yuan settlement.

The State Council said last December that it will allow Guangxi and Yunnan to conduct yuan settlement in a pilot program with Southeast Asian nations. It will also allow the yuan to be used for international trade in Shanghai and four cities in Guangdong province, including Guangzhou and Shenzhen.

The yuan has gained 21 percent against the greenback since a dollar peg was scrapped in 2005, eroding the value of exporters' dollar-denominated profits.

As China's role in the global economy becomes more significant, it's natural that more countries will want to trade in the Chinese currency and to hold it in their reserves," said Pan Hejun, vice mayor of Nanning, capital of Guangxi province.

Bloomberg News

(HK Edition 07/01/2009 page4)