St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.

The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.

Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China's Tianwan nuclear power plant, the most advanced nuclear power complex in China.

Putin has called for boosting sales of natural resources - Russia's main export - to China, but price has proven to be a sticking point.

Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia's energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.

Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.

Wen's trip follows Russian President Dmitry Medvedev's three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world's biggest energy producer with the largest energy consumer.

Wen said at the press conference that the partnership between Beijing and Moscow has "reached an unprecedented level" and pledged the two countries will "never become each other's enemy".

Over the past year, "our strategic cooperative partnership endured strenuous tests and reached an unprecedented level," Wen said, adding the two nations are now more confident and determined to defend their mutual interests.

"China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power," he said.

"The modernization of China will not affect other countries' interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries."

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a "fair and reasonable new order" in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.

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China’s most powerful military leader, in an unusual public statement, last week ordered military forces to prepare for combat, as Chinese warships deployed to waters near disputed islands and anti-Japan protests throughout the country turned violent.

Protests against the Japanese government’s purchase of three privately held islands in the Senkakus chain led to mass street protests, the burning of Japanese flags, and attacks on Japanese businesses and cars in several cities. Some carried signs that read “Kill all Japanese,” and “Fight to the Death” over disputed islands. One sign urged China to threaten a nuclear strike against Japan.

Gen. Xu Caihou, vice chairman of the Central Military Commission, considered the most senior military political commissar, said Friday that military forces should be “prepared for any possible military combat,” state run Xinhua news agency reported.

Heightened tensions over the Senkakus come as Defense Secretary Leon Panetta arrived in China Monday.

Panetta, in comments made in Japan shortly before traveling to China, said, “We are concerned by the demonstrations, and we are concerned by the conflict that is taking place over the Senkaku islands.”

“The message I have tried to convey is we have to urge calm and restraint on all sides,” he said, noting any “provocation” could produce a “blow up.”

Panetta repeated the U.S. position that it is neutral in the dispute over Japan’s Senkaku islands, a small chain of islets located south of Okinawa and north of Taiwan. But he also reaffirmed the U.S. defense commitment to Japan, a treaty ally.

“We stand by our treaty obligations,” Panetta said, echoing a similar commitment made during a 2010 standoff between Beijing and Tokyo over the Senkakus. ”They’re longstanding, and that has not changed.”

China claims the islands as its territory and calls them the Diaoyu islands.

Last week, following the Japanese government’s purchase of three of the Senkakus from private Japanese owners, six Chinese maritime security ships were deployed near the Senkaku islands, further heightening tensions.

Xu’s unusual comments followed reports in state-controlled Chinese media that opposed the Japanese government’s purchase of the three islands.

Xu said during a visit to military units near Taiyuan, in the northern province of Shanxi, “efforts should be made to ensure that the military is capable of resolutely performing its duty to safeguard the country’s national sovereignty, security, and territorial integrity whenever it is needed by the Party and the people.”

A U.S. official said the PLA’s most senior political general rarely makes such direct appeals to troops to prepare for combat.

Panetta told reporters en route to Japan, the first stop on a three-nation visit to Asia, “The United States does not take a position with regards to territorial disputes.”

In 2010, then-Defense Secretary Robert M. Gates invoked the U.S.-Japan defense treaty when tensions between China and Japan increased over Tokyo’s arrest of a Chinese fishing captain who rammed his boat against a Japanese coast guard vessel in waters near the Senkakus. Gates said the United States would “fulfill our alliance responsibilities” toward Japan.

Japan’s Coast Guard announced on Sept. 14 that six Chinese maritime patrol vessels sailed into Japanese-controlled waters near the Senkakus and the vessels ignored Japanese warnings for the ships to leave the area.

Other reports from China on Monday showed a convoy of hundreds of Chinese fishing vessels sailing toward the disputed islands.

The six Chinese ships entered Japanese waters near the island on Friday, and ignored Japanese coast guard orders for them to vacate what it said was its territorial waters.

The Chinese Foreign Ministry confirmed that six of its surveillance ships had entered the waters near the islands.

China’s aggressiveness in maritime disputes has garnered little attention in the presidential election campaign.

On Monday, President Obama criticized GOP nominee Mitt Romney for his attack on the administration for being soft on China through its weak response to China’s trade and currency policies.

The Chinese maritime warships near the Senkakus were reported last week by Xinhua as “routine patrols” near the islands to “assert the country’s sovereignty and protect fishermen.”

“The Diaoyou Islands and their affiliated islets have been China’s inherent territory since ancient times, and their surrounding waters are China’s traditional fishing ground,” the report said.

A classified Chinese government map from 1969 that was obtained by Japan’s government shows Beijing had labeled the islands as “Senkaku,” their Japanese name, and thus confirmed their control by Tokyo. The map, which was viewed by the Free Beacon, also had a dividing line south of the islands showing that they fall within Japanese territory.

Rep. Ileana Ros-Lehtinen (R., Fla.), chairman of the House Foreign Affairs Committee, said during a hearing last week that China’s behavior toward regional states was tantamount to bullying.

“While the world’s attention was turned to other crises, including Iran’s nuclear program and concerns over the faltering Euro, China has upped the ante, playing the role of a schoolyard bully towards its maritime neighbors,” Ros-Lehtinen said.

“From one end to the other of the South China Sea, Beijing has increased both in belligerence and bellicosity.”

Ros-Lehtinen said the United States, through the Navy, will stand by friends and allies in the region.

The Florida Republican said China is seeking to control the South China Sea and other coastal waters and sealanes because they are “central to the Chinese communist mandarins’ aspirations to re-establish the Middle Kingdom as the dominant power in Asia.”

“Whoever controls these sea lanes can dominate Asia—and beyond—by choking off that commerce and oil shipments to the major stakeholders in the Asian economic miracle,” she said.

Chinese efforts to dominate the western Pacific are increasing the possibility of naval clashes, Ros-Lehtinen said.

“Other global crises must not distract from our vital national interests in the South China Sea and the western Pacific,” she said during a hearing. read more