Yuan settlements in HK hit 369b yuan
More than 70 per cent of cross-border yuan trade settlements conducted in Hong Kong last year came from mainland buyers paying yuan to settle bills with overseas sellers in Hong Kong, according to the Hong Kong Monetary Authority.
Yuan trade settlements in Hong Kong totalled 369.2 billion yuan (HK$437 billion) last year, up from only 2 billion yuan in 2009, according to a paper submitted by the HKMA to the legislature.
A breakdown showed most of these trades, or 262.95 billion yuan, were related to mainland importers using yuan to pay overseas exporters via the Hong Kong banking sector.
The amount of yuan overseas buyers used to pay mainland exporters stood at 106.25 billion yuan last year, representing about 30 per cent of the total.
As a result there was a net inflow of 156.7 billion yuan into Hong Kong, explaining the substantial growth in local yuan deposits by corporates last year.
Total yuan deposits in Hong Kong stood at 314.9 billion at the end of last year, up 402 per cent from 2009.
Corporate customers had a total of 182 billion yuan on deposit, 58 per cent of the total. They represented only 1 per cent in 2009.
Beijing first allowed companies to use yuan to settle their trades in a pilot scheme in July 2009, but restrictive rules meant few did so that year. Yuan trade settlements only took off in February last year when the HKMA expanded the scope of that activity.
About half the small- and medium-sized enterprises in Hong Kong may opt to use yuan to settle cross-border trades in the next 12 months, according to a survey by HSBC.
Last month the bank released a survey of more than 6,300 SMEs in 21 markets across the world. Of the 300 surveyed in Hong Kong, 37 per cent were already using yuan in cross- border settlements.
Andrew Fung Hau-chung, a general manager and head of treasury and investment at Hang Seng Bank, said overseas companies did not have yuan on hand, which explained why fewer overseas firms were paying yuan to mainland exporters.
'As the yuan appreciates against the US dollar, foreign companies will not like to borrow yuan to settle their trades as they would need to repay more money when the yuan gains against the dollar,' Fung said.
For the same reason, because overseas and Hong Kong firms believe the yuan will increase in value, they would prefer to accept yuan rather than US dollars from mainland buyers. The yuan has risen in value against the US dollar by 20 per cent during the past six years and many believe it will rise by another 3 to 6 per cent this year.
'People may like to accept the US dollar when the yuan depreciates or when the US increases interest rates,' Fung said. 'But neither situation will occur in the near term... We are going to see the current trend continue and more yuan will flow to the Hong Kong market through these trade settlement activities. The yuan deposits in Hong Kong will thus go up to 600 billion yuan or even 1 trillion yuan in the next few years.'
