HONG KONG: Economists say the central government's green light to yuan-settlements in Hong Kong will help to strengthen the territory's position as an international financial centre.

Speaking at the end of the National People's Congress meeting, Premier Wen Jiabao said the central government has finished drafting the measures for settlement of trade deals between Hong Kong and the mainland in RMB.

"The scheme will be implemented as soon as possible, once it is approved by the State Council," Wen said in a press conference in Beijing on Friday.

Wen added that financial cooperation between Hong Kong and the mainland should be further enhanced. He said the central government is very much concerned about the difficulties that Hong Kong and Macao are encountering amid the global financial crisis.

"Hong Kong and Macao have experienced the Asian financial crisis, and we are completely confident that the leaders and people of the two administrative regions have the ability to cope with the financial crisis and overcome the hardship," Wen said.

Daniel Chan, a senior investment strategist at DBS Bank (Hong Kong), said yuan settlement in Hong Kong will make the city stand out even further from other Asian financial centers, such as Tokyo and Singapore.

"Given a strong economic situation on the mainland, the prospect of developing a yuan-clearing system in Hong Kong is significant," Chan said, "As settlements are usually followed by loans."

Chan also pointed out that the central government has already granted permission for the scheme. It's now up to the regional and Hong Kong governments to do their part.

Billy Mak, an associate professor at the department of finance and decision science of the Hong Kong Baptist University, said the banking system in Hong Kong is ready to deal with trade settlements in yuan.

"The scheme will be established on current yuan business at local banks, which will not involve many technical problems," Mak said.

Trade between companies in Hong Kong and the mainland is mainly cleared in US dollars, which inevitably increases the costs for the underlying currency exchanges, Mak added.

"A yuan-settlement system will help companies on both sides of the border to reduce their costs and risks amid currency exchanges," Mak said. "The scheme will provide an extra platform for companies' trading."

The central government, meanwhile, has approved the long-term development plan for the Pearl River Delta region, aiming to enhance cooperation between Hong Kong, Guangdong and Macao, the premier said.

(HK Edition 03/14/2009 page2)