HARBIN, June 19 (Xinhua) -- The ongoing financial crisis and world downturn has dampened enthusiasm for settling Sino-Russian border trade in the yuan or ruble, even though the Chinese and Russian governments want to expand the use of their currencies in bilateral trade settlement.

    Only 120 million U.S. dollars worth of trade was settled in either of these currencies in the first four months, down 46.4 percent from a year earlier, according to statistics obtained by Xinhua from the Heilongjiang Bureau of the State Administration of Foreign Exchange (SAFE).

    The figure represented 1.7 percent of total Sino-Russian trade, about triple the proportion of 0.5 percent in 2003 when a domestic currency settlement program was started by China and Russia, but sharply down from 7.3 percent last year.

    Zhang Yuanjun, deputy chief of the Heilongjiang Bureau of the SAFE who also heads the Harbin Branch of the People's Bank of China (PBOC, the central bank), attributed the setback in domestic currency settlement to the deepening global financial crisis as risk aversion encouraged U.S. dollar settlement.

    Because of the lack of an official exchange rate between the yuan and the ruble, Zhang said, domestic currency settlement must rely upon the U.S. dollar as the conversion unit, although that didn't mean purchasers had to hold the greenback.

    After the PBOC and the Central Bank of the Russian Federation signed the Banking Settlement Agreement on Border-Trade in March 2003, the influence of the yuan and the ruble grew slowly over the years, but the greenback continued to dominate as a settlement currency, he said.

    Moreover, even the two alternative settlement currencies differed from each other in leverage, with at least 99 percent of the domestic currency settlements done in the ruble.

    One reason for such imbalances, as general manager Qi Hong of the International Business division of the Harbin Bank explained, was that the ruble was fully convertible.

    YUAN ACCEPTED IN OTHER REGIONS

    By contrast, the yuan, despite its growing acceptance in neighboring countries, remains far from being internationalized.

    Although the PBOC has quickened the pace of internationalization since late last year by expanding bilateral currency swaps and allowing pilot yuan settlement in more export-oriented regions, the results vary among localities.

    In southwestern Yunnan where the Chinese trade mainly with Myanmar, Laos and Vietnam, about 91 percent of the imports and exports through local trading ports were settled in the yuan in 2007. The proportion only dipped slightly to 90.2 percent last year as a result of the financial crisis, according to statistics from SAFE's Yunnan Branch.

    Zhang Ming, deputy chief of the International Finance Section of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said the disparity in results was "reasonable."

    Southeast Asian nations were close to Hong Kong, a financial hub complete with a settlement center for Renminbi, where foreign companies could easily convert their yuan assets into other currencies, Zhang said.

    What's more, the issue of yuan-denominated bonds in Hong Kong by a number of Chinese banks including the State Development Bank and the Bank of China last year had opened a channel for foreigners to invest in yuan-denominated financial products, Zhang said.

　　YUAN NOT CONVERTIBLE, RUBLE VOLATILE

    "In northeast Asia, however," he said, "both the ruble and the yuan are at a disadvantage, as the U.S. dollar is fully convertible if compared with the yuan and more stable if compared with the ruble," he said.

    Businessmen engaged in Sino-Russian trade actually differ in their views of domestic currency settlement. At the ongoing Harbin Trade Fair, Gikevich Eduard Leonidovich, deputy general manager of the Turanles Forestry Company from Russia's Amur Oblast, avoided both alternative currencies.

    "Popularizing domestic currency settlement would be a long process for both countries. As the ruble is volatile while the yuan is not fully convertible, we will stick to the U.S. dollar," he said. "Moreover, financial institutions from both countries also need to simply their trading settlement procedures."

    A Chinese company seeking to broaden its business opportunities in Russia, however, appeared to be more determined to use the yuan as the substitute settlement currency.

    Zhang Zhen, deputy manager of the Hongfan Electronic Appliance Co., said that despite its disadvantage from being non-convertible, the yuan had been fairly stable. "As the Chinese economy is on the road to recovery, I think we could count on its stability to avoid risks," he said.

    As the Russian economy heavily depends upon oil, the sluggish global demand caused by the financial crisis has dealt a blow to the ruble. The currency has declined more than 30 percent from 0.0426 U.S. dollar per ruble on July 1, 2008 to 0.032 U.S. dollar per ruble on June 18, 2009.

    In their latest effort to expand the use of their currencies, Russia and China, holders of the world's third-largest and largest foreign reserves, signed a joint statement Wednesday after the BRIC summit at Yekaterinburg in central Russia, agreeing to create "favorable conditions" for widening the sphere of settlement in the ruble and the yuan.

    Although policy details were not disclosed, analysts think that the statement sent a signal.

    At the Harbin Trade Fair, a special introduction meeting was held to promote domestic currency settlement services of financial institutions from China and Russia.

    Domestic currency settlement services have expanded from Heilongjiang's Heihe City and Amur Oblast's Blagoveshchensk only six years ago to all trading ports along the Sino-Russian border, including six Russian oblasts and four Chinese provincial regions: Heilongjiang, Jilin, Inner Mongolia and Xinjiang.

    As of April, 12 commercial banks in Heilongjiang and 19 Russian commercial banks had agreed to become correspondent banks and jointly run 79 accounts, including 23 yuan accounts, 21 ruble accounts and 35 U.S. dollar accounts, according to SAFE's Heilongjiang Branch.

    Zhang Ming, the CASS researcher, doubted much progress would soon be achieved, as the impetus for foreign companies to hold yuan-denominated assets remained weak.

    "There are too many limitations," he said. "As the yuan remains on-convertible on the capital account, foreign companies could only use the currency for imports and exports, but not investment. The absence of offshore settlement centers makes the currency impossible to convert while the lack of a mature market to track the forward exchange rates of the yuan increases the risks of overseas holders of yuan assets."