US dollar is still the preferred settlement currency at the ongoing Canton fair, where China's currency, the RMB yuan, has been given 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.

"We are worried European and American buyers would feel declined if we insisted on 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, echoed the opinion saying that European and American buyers favor dollar settlement, which made the trial of yuan settlement difficult to win across the fair.

Export deals were down almost 21 percent year on year to US$13.03 billion at the first phase of the 105th fair which lasted from April 15 to 19 in Guangzhou.

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

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

"The yuan settlement can benefit manufacturers and traders at home and abroad by reducing their exposure to exchange-rate volatility, increasing liquidity in foreign trade and reducing consumer burdens," said Xu Xiaonian, professor with 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 that dare to be a vanguard in trying the yuan settlement at the fair.

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

The board reading "yuan settlement" was also seen at the booth of Shenzhen Yongfengyuan Industrial Co. Ltd. But the company's staff said the board was "more symbolic than its real meaning."

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

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

"To some Chinese exporters, losses from the exchange rate killed the business," said Zhang Xianping, a researcher with the Donghai Securities.

The second phase of the fair, featuring mainly consumer goods, gifts and home decorations, will last until Tuesday.

Viewed as a barometer of China's trade, the biannual fair is being held in three phases. The last phase from May 3-7 will give the stage to textiles and garments, shoes, office supplies and recreation products.

(Xinhua News Agency April 25, 2009)