Country mulls using Yuan in trade with China

ISLAMABAD –  Federal Minister for Planning Ahsan Iqbal has said that Pakistan is looking for the possibility of replacing dollar with Yuan in cross-border trade with China.

“Within Pakistan, rupee will be currency for the local trade but China wants to use Renminbi (RMB) or Yuan, instead of dollar, in bilateral trade between both the countries and we are examining it,” said minister for planning while launching 26-page Long Term Plan (LTP) of China-Pakistan Economic Corridor 2017-2030.The minister was accompanied by Chinese Ambassador to Pakistan Yao Jing.

The LTP document was signed last month in the meeting of 7th JCC and it was agreed to be reviewed every two years by both sides. CPEC projects are broadly divided in three phases starting from the Short Term Plan which is effective till 2020, Medium Term Plan that will cover the projects till 2025 and Long Term Plan which is valid until 2030.As per the LTP document, the key areas of cooperation, till 2030, include connectivity, energy, trade and industrial parks, agricultural development and poverty alleviation, tourism, peoples livelihood and exchange programmes and financial cooperation.

Under the financial cooperation plan, it was agreed that the two countries should promote monetary cooperation between the central banks, implement existing bilateral currency swap arrangements, research to expand the amount of currency swap and explore to enrich the use scope of bilateral currency swap, assign the foreign currency to domestic banks through credit-based bids to support the financing for projects along the CPEC, promote the settlement in domestic currencies (RMB and rupees) to reduce the demand for third-party currency, and strengthen the cooperation between the central banks and financial regulatory agencies of the two countries. The two sides will actively explore to use bilateral currencies for the settlement of bilateral trade and investment under the relevant arrangements. The two countries encourage clearing and settlement of the financial institutions from both sides through Cross-Border Inter-Bank Payment System (CIPS), promote the free flow of capital in an orderly manner, and enhance the facilitation in cross-border transfer of legitimate funds.

Both agreed to establish and improve a cross-border credit system and financial services, strengthen currency swap arrangements and establish bilateral payment and settlement system. They also agreed for establishment of a bilateral foreign exchange reserve pool and increase cooperation between central banks and financial regulatory agencies and set up a settlement platform for RMB cross-border trade.

The use of RMB has been discussed in detail. Its entails China supporting Pakistan to cooperate with the Asian Infrastructure Investment Bank (AIIB) and the both countries shall promote the mutual opening of their financial sector and the establishment of financial institutions. Both the countries will support the project financing by RMB loans, and establish the evaluation model of power bill in RMB.

Under the LTP, it was agreed to support the enterprises and financial institutions of the two countries in carrying out direct financing for projects along the CPEC in each other’s capital markets. Pakistan shall promote the construction of Gwadar Port Free Zone by drawing on the experience of China (Shanghai) Pilot Free Trade Zone and other Pilot Free Trade Zones in China, and explore RMB offshore financial business in Gwadar Free Zone. Both countries shall strengthen financial cooperation between their Free Trade Zones and explore the formation of a RMB backflow mechanism.

The LTP seeks China to give full play to its advantages in investment and financing in accordance with the principle of joint investment, joint construction and sharing benefits.

The governments of the two countries bear the primary responsibility for investment and financing of public welfare projects. Relevant policies and procedures shall be honored to coordinate the use of grant, interest-free loans, concessional loans and preferential export buyer’s credit provided by China to support strategic priority projects along the CPEC, further enhance the preferential margins and ensure the funds are used exclusively in the projects along the CPEC.

The LTP has asked the Pakistani federal government and provincial governments along the CPEC to try to assume some investment and financing responsibilities by various means, such as earmarked budget funds at all levels for the CPEC building and allowing provincial governments to issue financial bonds in domestic and foreign capital markets. Both governments actively take various forms to provide credit enhancement support for major financing projects, effectively reduce the financing costs and protect the rights and interests of creditors.

Besides, the two countries would enable indirect financing by financial institutions. They would strengthen strategic cooperation between policy banks, development finance institutions and commercial banks, and study and solve financial issues with the CPEC building; explore various ways to support the Silk Road Fund, China-Eurasia Economic Cooperation Fund in participating in the investment and financing for the CPEC.

In connectivity, it was agreed to construct an integrated transport system which includes construction and development of road infrastructure from Kashgar to Gawadar and Karachi via Islamabad, Peshawar, DI Khan , Quetta and Sohrab. Upgradation and expansion of existing eailway line, development of Gwadar port is also part of the LTP connectivity plan. In information network infrastructure, it was agreed to boost information connectivity and promote pragmatic cooperation through construction and operation of local communication, broad and TV networks, cross border optical fiber.

In energy, it was agreed to boost cooperation in generation and transmission of electricity, oil and gas. The possibility of construction of refineries and storage alongside CPEC is also part of the LTP. For hydropower development it was agreed to promote river planning and preparatory work of major projects to accelerate the hydropower development process. Development of coal, wind and solar based energy generation is also included in LTP. It was agreed to develop the industry for manufacturing of energy sector equipments in Pakistan.

The development of trade and industrial park is also approved as part of LTP. LTP will also help Pakistan to promote industrial capacity cooperation in sectors such as chemical, pharmaceutical, engineering, agro, iron steel and construction material. The development of Special Economic Zones (SEZs) is also part of this cooperation.

In agriculture development and poverty alleviation, both the countries should cooperate in key construction areas such as biological breeding, production, processing, storage and transportation, infrastructure construction, disease prevention and control, water resources utilization, conservation and protection, land development and remediation, ICT-enabled agriculture and marketing of agricultural products to promote the systematic, large-scale, standardized and intensified construction of the agricultural industry. Under tourism, it was agreed that China and Pakistan should further develop the tourism potential in this region including coastal tourism.

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