The central government will allow eligible companies to settle trades in renminbi in Hong Kong, Chief Executive Donald Tsang said after his duty visit to Beijing on Friday.

Expanding the use of renminbi in Hong Kong will make the city a renminbi clearing center, Tsang said.

Daniel Chan, a senior strategist at DBS Bank (Hong Kong), said allowing companies to use renminbi in trade settlements is an important decision. "This step will make Hong Kong a better place for offshore renminbi clearing center than Singapore and Tokyo," he said, "though it's still a long way to go."

Tsang also said that the People's Bank of China will sign a currency swap agreement with the Hong Kong Monetary Authority to facilitate trading between Hong Kong and the mainland.

Hong Kong Association of Banks chairman He Guangbei, who is also the vice chairman and chief executive of Bank of China (Hong Kong), agreed that Hong Kong is moving toward building up its role as a regional renminbi clearing center.

He told reporters that the renminbi trade settlement will provide an advantage for Hong Kong enterprises. The city's financial sector had been looking for it for the last two years, he said.

He also noted that the new measures will help the exporters and importers to manage the risk in exchange rate, particularly, the traders who face high risk when the renminbi rises at a fast pace.

Hong Kong's limited renminbi deposit base, which amounted to 66.1 billion yuan by the end of October, may hinder expansions of the use of renminbi, he said.

However, DBS's Chan said the implementation of currency swap agreement will allow easier access to renminbi. "But we have to wait and see the amount of renminbi capital that traders can get through the currency swap agreement," Chan added.

(HK Edition 12/20/2008 page1)