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.
RECENT STORIES:
China approves Shanghai new yuan pilot zone - report
ID:nL3N0FA0C3
Taiwan considers setting up local yuan reference rate -sources
ID:nL3N0F71YM
CNH Tracker-Hong Kong must heed risks as China toughens up on
credit http://link.reuters.com/jyx29t
More stories about the CNH market CNH
Daily onshore yuan reports CNY/
Daily China money market reports CN/
Offshore yuan rate CNH= Onshore yuan rate CNY=CN
Offshore yuan dealt CNH=D3 Onshore yuan on CFETS CNY=CFXS
CNH HIBOR CNHHIBOR
THOMSON REUTERS SPEED GUIDES
CN/OFFSHORE CN/HIGHLIGHT NDF/3 NDF/4 0#CNHBOND=
($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
Recent news on Shenzhen Investment Holdings Bay Area Development