A Bank of China building in midtown New York. The cross-border business of two major Chinese banks surged last year as global demand for the yuan rose. Yu Wei / China Daily

Trade deals in Chinese currency jumped 41 percent last year

The cross-border business of two major Chinese banks, Industrial & Commercial Bank of China Ltd and Bank of China Ltd, surged in 2012 as global demand for China's yuan currency increased.

Yuan-denominated settlements of cross-border trade rose 41 percent last year from 2011, while investments settled in the currency surged 153 percent, according to data from the People's Bank of China.

But yuan transactions in the United States declined 38 percent in December from November, making 2012 a flat year in terms of the use of the Chinese currency in the world's biggest economy, the global banking settlement system known as SWIFT disclosed on Wednesday.

Daniel Hwang, chief currency strategist at Gallant Capital Markets in New York, predicts US payments in yuan will increase this year.

"Capital inflows into China will remain attractive but with recently more bullish US Fed commentary, expectations for higher US interest rates sooner rather than later will likely lead to some pickup in yuan transactions in the US," he said.

"It's a perpetual yield chase for traders and investors alike, recent positive US economic data surprise coupled with more-hawkish Fed comments are likely to be the main drivers of increased yuan transactions in the US."

Cross-border yuan business conducted by ICBC's domestic and overseas branches exceeded 1.5 trillion yuan ($238.91 billion) in 2012, up nearly 70 percent year-on-year, the world's largest commercial bank by market value said on Wednesday.

Overseas institutions contributed half of the volume, it said.

"In some branches, the yuan business even accounted for one-third or half of the assets, deposits and revenue," according to the bank.

By the end of 2012, ICBC's yuan-clearing network had spread to nearly 70 countries and regions. The bank said all overseas branches have started to process yuan-denominated cross-border services.

Meanwhile, BOC - a key Chinese player in terms of promoting global business in yuan - said on Tuesday that its domestic branches conducted 1.2 trillion yuan worth of cross-border business last year, up 54 percent from 2011, giving the bank a market share of more than 30 percent.

BOC's 24 overseas branches and subsidiaries processed 1.26 trillion yuan in such business during the same period, up 29 percent from the previous year.

The bank said that as of Tuesday its total cross-border settlements in yuan had exceeded 4.6 trillion.

"The renminbi business has grown fast and has great potential, the reasons being there are an increasing number of businesspeople visiting each other and at the same time, the foreign-exchange control has been relaxed," said Wu Shiqiang, general manager of Bank of China USA.

"The growing renminbi has also been attributed to the relatively higher interest rate [compared to the dollar], and the expectation for renminbi appreciation, which is of course, not guaranteed," he said.

According to ICBC, cross-border yuan business among commercial banks last year was spurred in large part by broader international monetary cooperation and the sound development of the offshore yuan-denominated market.

Hwang said China's neighboring Asian emerging-market economies, or EMEs, are likely to be drivers of this surge in 2012 while macroeconomic fundamentals drive yuan cross-border transactions.

"The fact that China is currently seen as the global growth engine is likely to see cross-border transactions continue to trend higher, although a liquidity squeeze resulting from the Chinese New Year should materialize prior to further growth in cross-border transactions," Hwang said.

He said the central bank's announcement of short-term liquidity operations, intended to stabilize interbank lending and money-market interest rates, reflects a commitment by China to liberalize its capital account.

Broad global use of the Chinese currency in 2012 will further enhance lenders' enthusiasm for developing their yuan business in coming years, said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing.

An index measuring the yuan's global use rebounded in November, supported by increases in offshore yuan deposits, issuance of Hong Kong-based "dim sum" bonds and trade-settlement volumes in the currency, Standard Chartered Bank said on Monday.

Standard Chartered said the growth would continue as confidence in China's economy and yuan appreciation are sustained.

On Wednesday, the yuan closed up after the central bank raised its daily fixing rate for the currency for the first time this week.

The spot yuan closed at 6.2180 versus the US dollar in Shanghai trading, up from Tuesday's 6.2198.

The yuan's reference rate, set by the PBOC, was up 0.05 percent to 6.2762 against the dollar for the day. The yuan is allowed to trade up or down as much as 1 percent on either side of the reference rate.

Contact the writers through wangxiaotian@chinadaily.com.cn and yuweizhang@chinadailyusa.com

(China Daily 01/24/2013 page1)