More exports can be in yuan, says economist
The mainland has plenty of room to grow the proportion of its external trade settled in yuan rather than foreign currencies, which will bring more opportunities for Hong Kong's trade financiers despite growing competition from other offshore yuan trading centres, according to an economist.
Citing Japan's trade settlements, US investment bank JP Morgan's chief China economist, Zhu Haibin, told the Hong Kong Management Association's annual conference yesterday that he believed growing adoption of the yuan as a settlement currency will continue.
"In Japan, 41 per cent of total exports are settled in yen, while the proportion for import is 24 per cent," said Zhu. "So for China, there is still big room for more trade to be settled in yuan."
Starting from almost zero in 2009, the proportion of mainland external trades transacted in yuan grew to around 10 per cent last year, he noted.
Hong Kong's banks handled 96 per cent of such trades in the first eight months this year. In addition to using yuan to reconcile trades, companies, both domiciled on the mainland or elsewhere, have also started raising yuan funds by issuing bonds in Hong Kong, to tap into growing yuan deposits in the city.
Hong Kong is the world's largest offshore yuan trading centre and has some 678 billion yuan in savings and time deposits in the banking system currently. London has attracted some firms to issue yuan-bonds there, while Singapore is also aiming to become a yuan trading hub.
Some 30 per cent of foreign direct investment going into the mainland is denominated in yuan, while about 7 per cent of direct investment going offshore from the mainland, is conducted in yuan, Zhu said.
The yuan struck a record high yesterday against the greenback, as yuan buying by mainland companies sent the spot-market rate to its daily ceiling of 6.229, under Beijing's managed partially-floated exchange rate system. This put the yuan at its strongest against the dollar since China deregulated its currency market in 1994, and up 0.26 per cent on last Friday's close of 6.245 yuan.