The United States dollar is still the preferred settlement currency at the ongoing Canton Fair, where China's currency, the yuan, has been given the green light to test the market in trade.

The second phase of the month-long fair, the largest export event in China, opened on Friday, five days after the first phase ended. This phase, featuring mainly consumer goods, gifts and home decorations, will end in Guangzhou tomorrow.

"We are worried European and American buyers would decline if we insisted on a yuan settlement," said a Beijing-based porcelain producer at the fair. He said the company would not risk losing any potential buyers, as the export environment is gloomy amid the global financial crisis.

Xu Jianguo, manager of a Shanghai-based stainless-steel dishware exporter, agreed.

He said European and American buyers favor the US dollar settlement, which prevented the yuan from being used more often at the fair.

Export deals plunged almost 21 percent year on year to US$13.03 billion during the first phase of the 105th fair, which is held more than once a year, from April 15 to 19.

Mu Xinhai, a fair spokesman, attributed the sharp fall to shrinking "external demand, especially from developed countries."

The Chinese government allowed five major cities - Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan - to use the yuan as an option to settle international trade deals right before the fair.

International crrency

"The yuan settlement can benefit manufacturers and traders at home and abroad by reducing their exposure to exchange-rate volatility, raising liquidity in foreign trade and cutting consumer burdens," said Xu Xiaonian, professor at the China Europe International Business School.

But the yuan has a long way to go to become a leading international currency, he said.

The Zhejiang Taibao Bottle Cork Co is one of the Chinese exporters trying the yuan settlement at the fair.

"We are confident of persuading customers to accept the settlement condition," said Chen Qinbin, adding that the company's products enjoy a leading market share in the Asia-Pacific region.

A Zhejiang Province exporter said business was deeply hurt by the volatile exchange rate.

"A trade deal of US$1 million was signed at the beginning of last year, when it was worth 7.2 million yuan. But it shrank to 6.8 million yuan, when the money was due six months later," he said.

Some Chinese exporters found that ''losses from the exchange rate killed the business," said Zhang Xianping, a researcher at Donghai Securities.

The last phase of the biannual fair from May 3-7 will feature textiles and garments, shoes, office supplies and recreation products.

(Xinhua News Agency April 27, 2009)