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24 October 2009

Free trade deal with Asean to boost use of Chinese yuan

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The Chinese currency yuan is expected to play a bigger role in regional trade as the China-Asean Free Trade Area (CAFTA) is to be realised on January 1 of 2010, reported Chinese state news agency Xinhua.

"The upcoming CAFTA, which boasts the largest population among all the world's FTAs and allows zero-tariff on 90 percent of products traded between China and Asean, will quicken the process of RMB (yuan) regionalisation, "Xu Ningning, executive secretary general of China-Asean Business Council, told Xinhua at the 6th China-Asean Expo in Nanning, capital of Guangxi Zhuang Autonomous Region.

Free trade demands free flow of currency, making possible the regional use of RMB, he said.

The expo, held from October 20 to 24 ahead of the operation of FTA to embrace free trade and mutual investment, attracted state leaders, high-ranking officials and entrepreneurs from inside and beyond the Asean region.

Alongkorn Ponlaboot, deputy minister of commerce of Thailand, was quoted as saying that yuan was a very stable currency and expanding its use could help reduce risks faced by the Asean countries in using the US dollar, which has become highly volatile as a result of the global financial crisis.

Data from China's General Administration of Customs showed trade between China and Asean more than doubled to $231.07 billion in 2008 from $105.88 billion in 2004. China and Asean are currently the fourth largest trade partners to each other.

However, the use of yuan in Asean fell far short of the trade growth between China and Asean. Currently, RMB settlement was mainly adopted in border trade which accounted for only 10 percent of the China-Asean bilateral trades, according to Teng Chong, board chairman of Guangxi Beibu Gulf Bank.

Su Ning, vice governor of China's central bank, said financial cooperation between China and Asean was still at the initial phase and financial markets were not open enough. But potential for cooperation was huge as finance in China and Asean seeing fast development currently.

China has been launching pilot RMB programs over the years, but the pace has obviously quickened since the onset of the global financial crisis as the U.S. dollar has been getting weaker, arousing concerns that an unstable dollar would lead to increased costs and risks for traders.


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