CNH Tracker-More trade payments settled in yuan

Shenzhen Investment Holdings Bay Area Development

04/07/2013 09:58

By Saikat Chatterjee 
    HONG KONG, July 4(Reuters) - As the offshore yuan project 
marks a three year anniversary this month, there are signs that 
use of the Chinese currency to settle trade payments has 
regathered momentum, helped by further easing of restrictions on 
cross-border flows. 
    Growth in the use of the yuan moderated last year and early 
this year, after an explosive start following a landmark 
agreement between China and Hong Kong in July 2010 that laid the 
foundations of the offshore yuan market. 
    The amount of China's total trade settled in yuan, or 
renimbi as it called offshore, surged from 3 percent in 2010 to 
9 percent in 2011, but after that six percentage point gain it 
only increased three percentage points to 12 percent in 2012, 
and barely rose in the first quarter of this year. 
 ID:nL4N0BX4D5   
    While the slowdown in yuan trade settlement was a lack of 
reach outside Asia, with Hong Kong accounting for nearly 80 
percent of transactions, along with restrictions on cross-border 
flows, bankers say recent reforms should boost yuan trade. 
    Changes such as a pilot quota scheme announced in March that 
allowed a handful of foreign companies operating in China to 
move funds freely across borders is boosting trade volumes and 
encouraging other foreign firms to settle trade in yuan. 
    Latest data from the Hong Kong Monetary Authority shows that 
monthly flows for cross-border trade jumped 16 percent in May 
from a month earlier and transaction bankers also report a 
gradual rise in yuan trade volumes in recent months. 
    "We are starting to see dialogue with companies move from a 
'what is in it for me' stage to 'how can we do this' stage and 
some large companies are starting to come through finally," said 
the head of Asia transaction banking at a European bank in Hong 
Kong.    
    A cash squeeze in the mainland in recent weeks may have made 
some firms reluctant to use yuan to settle payments, but that 
appears to have been a temporary impediment as money market 
rates have come back down. 
    Redenominating Chinese trade in the yuan versus U.S. dollars 
has always been the primary goal for Beijing and analysts expect 
the recent wave of reforms to boost yuan trade settlement. 
    HSBC expects trade in yuan to cross the 30 percent mark by 
2015, ultimately paving the way for full yuan convertibility. 
    "We have seen the yuan internationalization trend register 
impressive growth in recent years and we expect it to continue 
at a strong pace," said Lisa O'Connor, RMB Director at Society 
for Worldwide Interbank Financial Telecommunication (SWIFT). 
    The Brussels-based consortium, that handles most 
international bank payments, ranked the yuan 13th among 
currencies used for international trade payments in its June 
report. But SWIFT expects the yuan to overtake some more 
established Asian currencies like the Hong Kong and the 
Singapore dollars, respectively ranked 11th and 8th. 
    A more globalised yuan will present opportunities for global 
banks and international payment consortiums, while China has its 
own plans. A yuan clearing system operated by the People's Bank 
of China, named the China International Payments System (CIPS), 
is expected to be introduced later this year or in early 2014. 
             
    WEEK IN REVIEW: 
    Tough love. In his first public remarks since a cash crunch 
seized onshore and offshore markets last month, Zhou Xiaochuan, 
governor of the People's Bank of China said it would adjust 
liquidity to keep the financial markets stable. ID:nL3N0F40O3  
The cash crunch onshore had raised overnight borrowing costs for 
banks and hurt investor demand for a jumbo bond sale by China's 
Ministry of Finance in Hong Kong last week. 
     
    New fix. Taiwan's central bank is planning to introduce its 
own reference rates for its yuan market, two sources familiar 
with the matter said this week, following a similar move by Hong 
Kong last month. Taiwan's central bank will work with banks to 
create fixings on the yuan exchange rate and interest rate which 
may be introduced in two to three months, they said.  
     
    Squeeze eases. A kink in the very short-end of the funding 
curve which had made one-week borrowing costs over 2 percentage 
points more expensive than one-year costs has begun to disappear 
gradually. 
     
    Equity offerings. Yuan listed shares in Hong Kong could 
resume after a long gap, the South China Morning Post reported 
earlier this week citing PWC executives. Despite regulators' 
efforts to encourage foreign investors to put money in yuan 
bonds, they remain reluctant due to the lack of liquidity. 
     
    CHART OF THE WEEK: 
    Quarterly dim sum bond sales: http://link.reuters.com/rev39t 
    After topping 55 billion yuan in issuance in the first 
quarter of 2013, yuan-denominated bond sales plunged in the 
second quarter as expectations of yuan gains faded and worries 
of rising U.S. interest rates made global investors less 
interested.        
        
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Offshore yuan rate   CNH=    Onshore yuan rate  CNY=CN    
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($1 = 6.1308 Chinese yuan) 
     
 
 (Editing by Simon Cameron-Moore) 
 ((saikat.chatterjee@thomsonreuters.com)(852-2843-6548)(Reuters 
Messaging: saikat.chatterjee.reuters.com@reuters.net)) 
 
Keywords: MARKETS OFFSHORE/YUAN