CHINA is taking a step towards making the yuan fully convertible with the launch of a pilot scheme in Guangzhou allowing foreign travellers to change foreign money directly into yuan. The pilot scheme, to be launched before June, will effectively float the yuan against other currencies on an open foreign exchange market. Those undertaking forex transactions will be allowed to execute at the market rate and not the pre-determined official rate of 74 yuan to HK$100. An official at the State Administration of Exchange Control, Guangdong branch, said yesterday that the plan to set up the foreign exchange market had been submitted to Beijing for approval. ''We are stepping up the establishment of the open market and looking for an ideal venue so that it can be in operation by June when Beijing gives its approval,'' said the official. At present, foreign exchange swap centres around the country allow enterprises to trade their surplus foreign exchange at prices in accordance with supply and demand. But individuals are not allowed access to these centres and overseas travellers and some businessmen must change their currencies into Foreign Exchange Certificates (FEC) at the official rate, which is much lower than swap centre price and black market rate. The open market will handle the small amounts of foreign exchange trading by individuals, while large amounts of foreign currency obtained from international trade must still be exchanged at the official rate. The official said the move was aimed at stemming the yuan black market, considered disruptive to the healthy development of the country's foreign exchange system. China's first open foreign exchange market comes at a time of growing fears about the devaluation of the yuan against major foreign currencies. Full convertibility of the yuan is seen as vital to the further opening of mainland financial markets to foreign investment. Convertibility would also play a key role in appeasing a number of Western trading partners which seek the removal of Chinese barriers to trade. Meanwhile Guangzhou has launched a pilot scheme which allows domestic individual users access to foreign currency markets for the purpose of personal savings. The China Daily quotes an unidentified official from the Guangzhou branch of the Bank of China as saying any customer with the equivalent of US$100 can buy and sell foreign currencies at international rates to make a profit. The programme is seen as another move aimed at creating conditions for the floating of the yuan at market rates and wiping out the rampant black market. Last month, the Bank of China in Guangzhou opened China's first foreign exchange margin trading business, where brokers deposit certain amounts of foreign currency to guarantee much larger transactions they undertake during the day. Since the beginning of March, travellers leaving China have been permitted to take 6,000 yuan with them to Hongkong, where foreign banks have since offered to convert the money to hard currency at a mark-up from its official rate. The paper also reported that Beijing city has applied for central government approval to open foreign bank branches. Despite widespread enthusiasm among foreign bankers to establish branches in the Chinese capital, only 13 coastal cities have so far been allowed to open branches.