Dongguan-based Aoyu Hardware and Plastics Co Ltd in the Pearl River Delta region concluded its first cross-border yuan trade settlement deal on July 7, after the local government started pilot trials of the yuan trade settlement program.

However, the firm has not conducted any more yuan settlements despite the theoretical advantages.

"I have no idea when I will do the next yuan trade settlement," said Ye Yunsheng, general manager of the firm.

"It depends more on my overseas clients. The yuan trade settlement is yet to become popular among the overseas business people," he said.

"That together with the troublesome procedures for the settlement has made the program less popular with the pilot firms," said Ye.

The pilot program in Guangzhou, Shenzhen, Dongguan and Zhuhai in Guangdong province has run into some problems, said Liang Yaowen, director of the provincial foreign trade and economic cooperation department.

"Local enterprises have a very strong demand for the settlement program," he said. "However, I have to be frank that the program has run into some problems since its inception in early July."

According to the official, very few enterprises have continued to opt for yuan trade settlement, as most of the overseas business houses are reluctant to accept the settlement mode.

"Their anticipation of the renminbi appreciation in the near future and the fact that they have more reserves of international currencies, like US dollars, are making them reluctant to opt for yuan trade settlement. Most of the time, they use these advantages when bargaining with business people in the provinces," he said.

The pilot program targets bilateral trade payments with Hong Kong, Macao and the ASEAN, Liang said. However, the province's key trade partners are from the US, the European Union and Japan.

"That definitely limits the scope of the yuan trade settlement for many of the key exporters and importers in the province," he said.

"It will take some more time; and the yuan trade settlement will gain popularity when more enterprises are allowed to use the settlement mode and when related policies are improved," he said. Nearly 273 enterprises from the four pilot cities are participating in the yuan settlement trials.

Executives with several banks that are allowed to do the business told China Daily that they have received virtually negligible business other than on July 7, the first day of the trials.

"With its huge throng of foreign-funded enterprises and its close trade and financial relationship with Hong Kong and Macao, Dongguan should have become an ideal city for the business," said Liu Yuanfeng, deputy departmental manager of the Dongguan branch of Bank of Communications. "However, almost all the banks have received no such businesses at all in the past month."

"As far as I know, the case is true of the banks in other three pilot cities in the province," she added.

"The government should make changes to the policies and simplify related procedures to encourage the yuan trade settlement program," said Cai Gaosheng, chairman, Guangdong Silk-Tex Group Co Ltd.

(China Daily August 25, 2009)