Chinese banks seize on Russia, oil trade to internationalise yuan

Harbin Bank Co

28/04/2023 05:04

By Samuel Shen and Tom Westbrook
       SHANGHAI/SINGAPORE, April 28 (Reuters) - Chinese banks
are ramping up efforts to promote international use of the yuan,
and reporting a surge in cross-border yuan business from the
country's booming trade with Russia and  deepening ties with the
Middle East.
    Harbin Bank Co  6138.HK , in China's Heilongjiang province
neighboring Russia, saw its cross-border yuan business grow
nine-fold last year to a record, as the Sino-Russia trade grew
briskly after the Ukraine war began.
    China Construction Bank  601939.SS  and Agricultural Bank of
China (AgBank)  601288.SS  reported total assets at their Moscow
subsidiaries jumped 3.3 times and 1.4 times, respectively, in
2022, while Russia was put under harsh western sanctions.
    Admittedly the growth came off a low base, but these small
steps in yuan adoption come after a string of bilateral deals by
China with its trade partners, such as its oil purchases from
the Gulf and other trade with Brazil and Russia. 
    The yuan's share of global payments is merely 2.5%, and tiny
compared with U.S. dollar's 39.4% and euro's 35.8%, according to
SWIFT, the global payment messaging system controlled by the
West.
    But Reuters analysis of banks' latest filings shows how the
one-year-old Ukraine war that led to Russia being kicked out of
the dollar system, is revving up China's efforts to extend the
plumbing for an alternative currency system.    
    "China should prepare for the worst-case scenario of being
excluded from SWIFT, and actively promote cross-border use of
the yuan," Wang Jiehua and Qiao Liqun, executives at Harbin
Bank, wrote recently in a publication affiliated to China's
central bank.
    China should use the opportunities brought about by western
sanctions against Moscow to expand trade with Russia, and make
Heilongjiang a beachhead for yuan internationalization, they
wrote.   
    In Inner Mongolia, also neighbouring Russia, Bank of Inner
Mongolia has been actively engaged in yuan settlements and trade
financing businesses with its Russian peers, facilitating
bilateral trades, official Xinhua news agency reported in March.
    Even Chinese banks with modest Russian business, such as
Bank of Jiujiang  6190.HK  and Postal Savings Bank of China
 601658.SS , said their cross-border yuan settlements more than
doubled as Beijing pushed for global use of the yuan currency.
AgBank's yuan clearing business jumped 157% last year in Dubai.
    
    CIPS VS SWIFT  
    Harbin Bank, which in 2015 partnered with Sberbank of Russia
to establish a platform for Sino-Russian financial cooperation,
last year launched a department dedicated to promoting
cross-border business with Russia. 
    It also vowed to promote the Cross-border Interbank Payment
System (CIPS) - China's answer to SWIFT - seeking to be "a major
force" in the development of yuan business and CIPS in the
Russian market.
    Industrial Bank Co  601166.SS , whose cross-border,
corporate payment business jumped 50% last year, has also been
actively promoting CIPS, China's own global payment system. 
    The bank said it currently helps 153 foreign and Chinese
banks connect to CIPS, to advance China's yuan
internationalisation strategy.
    In the Republic of Tajikistan, AgBank held a campaign last
December to introduce CIPS, as it seeks to lay out a
cross-border yuan clearing network linking China and the Central
Asian country. 
    The efforts were captured by official data. In March, 61
participants joined CIPS as indirect participants, more than in
the previous four months combined.
    Bank of China  601988.SS , which is the biggest facilitator
of CIPS in terms of market share, published an ambitious agenda
last month for yuan internationalisation.
    The bank, whose cross-border yuan settlement grew 26.1% last
year to 31.1 trillion yuan ($4.50 trillion), vowed to support
China's state-owned companies, commodity traders, and
engineering contractors in using yuan for settlement and
financing.
    Another state bank, the Bank of Communications (BoCom)
 601328.SS , said it facilitated China's first yuan-settled
trade of Liquid Natural Gas (LNG).  
    "China has big influence on the demand for oil and gas,"
China's fifth biggest bank said in a statement this week, after
it helped CNOOC and Frances's TotalEnergies complete the
milestone LNG deal. 
    "Increasing the use of yuan in pricing, and settling
cross-border oil and gas trade will give a boost to yuan
internationalization." 

($1 = 6.9148 Chinese yuan renminbi)

 (Reporting by Samuel Shen and Tom Westbrook; Additional
reporting by Winni Zhou
Editing by Vidya Ranganathan)