Shanghai will start a trial plan to settle cross-border trade using the yuan "in the near term" as part of its initiatives to become a major international financial and shipping center by 2020.

This and other local pilot projects for innovations in finance and shipping could pave the way for similar measures nationwide, Liu Tienan, deputy chief of the National Development and Reform Commission, the nation's top planner, said yesterday at a news conference in Shanghai.

His remarks came as the State Council, China's Cabinet, unveiled guidelines for promoting Shanghai as a global financial and shipping hub, telling the city to "go ahead and test the waters."

"We are selecting the first group of companies that will participate in the yuan settlement program," Tu Guangshao, a Shanghai vice mayor, said at the news briefing. "The commercial banks are well prepared. In my opinion, everything is ready for Shanghai to kick off the trial."

The pilot run is expected to help stabilize trade and trim exporters' currency exposure while building the yuan's position in the US-dollar-dominated international monetary system.

The Shanghai branches of the Bank of China and the Bank of Communications have finished system tests for the program, including checks of clearing agreements with overseas banks.

The State Council authorized the yuan settlement trial in four cities in Guangdong Province and Shanghai earlier this month.

China, in seeking to promote the yuan as an international currency, has signed 650 billion yuan (US$95 billion) in swap agreements with Argentina, Indonesia, South Korea, Malaysia and Belarus in the past months.

Liu said it is hard to set a schedule for the currency's move toward full convertibility but that the country will allow more innovation in the monetary sector.

Also under yesterday's guidelines, overseas companies were encouraged to sell yuan-denominated shares and bonds in Shanghai.

"China's introduction of new financial products including stock index futures is inevitable," Tu said.

Liu added that Shanghai's rise as a bigger power in the international financial arena won't threaten Hong Kong.

The special administrative region is ahead of Shanghai in terms of market openness, internationalization, product diversity and scale, he said, adding "Shanghai and Hong Kong will develop together."

Shanghai is already the world's second biggest port in terms of container throughput.

To further boost growth, China plans to exempt shipping companies that are registered in the Yangshan Deep-Water Port from paying business tax on their international shipping revenue.

Meanwhile, Shanghai-registered insurers don't have to pay business tax on income derived from their international shipping insurance operations.

At the same news conference yesterday, Vice Mayor Yang Xiong told reporters that a plan for making Shanghai's Nanhui District a part of Pudong New Area awaits central government approval.

The merger would help support the city's financial hub strategy, city officials said.

(Shanghai Daily April 30, 2009)