Hong Kong will soon finalize an agreement with the Chinese mainland to allow firms to settle trade between the city and Guangdong province using the Chinese yuan, expanding the yuan's role as a trade currency beyond the mainland for the first time.
China is gradually liberalizing its currency, which is not convertible. Allowing it to be used for trade in Hong Kong is a small step toward making it an international currency.
"The two governments will develop the two places as renminbi clearing bases," the Hong Kong government said in a statement after Chief Executive Donald Tsang met with Guangdong officials during a visit to Beijing on Tuesday.
Details of the plan would be finalized soon, the statement said. Cross-border trade between Hong Kong and Guangdong is currently in Hong Kong dollars or US dollars.
Chinese Government said in December 2008 that it aimed to allow the yuan, also known as the renminbi, to be used on a trial basis to settle trade between a few provinces and neighbouring states.
Members of the Association of Southeast Asian Nations would also be permitted to use the Chinese currency in trade with China's southeastern regions of Guangxi and Yunnan, it said.
The China Securities Journal reported last week that selected banks in Shanghai, including Bank of Communications and the Shanghai branch of Bank of China, would soon begin settling cross-border trade in yuan.
Hong Kong is being used as a center for the gradual liberalization of the yuan. In the past few years the central government has authorized the issue of yuan-denominated bonds in the city, as well as the establishment of renminbi currency accounts for Hong Kong residents and payment in yuan at some retailers.
Tsang, during his visit to Beijing, also discussed measures to allow more mainland tourists to visit Hong Kong independently of tour groups.
From April 1, residents in the southern city of Shenzhen will be able to visit Hong Kong freely, expanding a scheme that has been introduced in other mainland cities over the past six years.
Chinese Mainlanders now account for more than half of tourists in Hong Kong. Expanding the visitor scheme to Shenzhen is aimed at supporting the recession-hit Hong Kong economy as tourists account for 20-30 percent of the city's retail sales.