Yuan Global Use to Rise on China Middle Class, HSBC Survey Finds

The yuan’s use in global trade will increase in the next five years as global companies seek to bolster sales targeting China’s middle class, according to a survey by HSBC Holdings Plc. (HSBA)

The London-based lender, which spoke with 711 businesses from Asia to Europe with at least $3 million in sales a year, said 73 percent of the 128 corporates which use the yuan expect to increase their cross-border use of the currency. A quarter of the non-users plan to pay or receive the yuan, showed the survey conducted in China, Hong Kong, Singapore, Australia, the U.K., the U.S. and Germany in May and June.

“People realize that, as China moves up the value chain, its imports will start rising and probably exceed exports,” Simon Constantinides, HSBC’s regional head of global trade and receivables finance for Asia-Pacific, said in an interview yesterday. “That means companies in China will be buying internationally and they are likely to pay in renminbi.”

The Chinese currency was the 13th most-used in global payments in May, with its market share rising to a record 0.84 percent from 0.69 percent in April, the Society for Worldwide Interbank Financial Telecommunication said last month.

The HSBC report comes as China looks to promote the yuan’s use in an effort to diversify its $3.5 trillion foreign-exchange reserves, the world’s largest stockpile. The government last week relaxed rules on cross-border usage, allowing companies to give yuan loans to overseas affiliates.

Reserve Currency

Bundesbank board member Joachim Nagel said on July 3 that the yuan may become an international reserve currency and that Frankfurt is trying to establish itself as the trading center in Europe.

China signed a three-year swap agreement last month for 200 billion yuan ($33 billion) with the Bank of England to foster trading in London. The European Central Bank, based in Germany’s financial capital, may obtain a deal valued at four times that amount, according to lobby group Frankfurt Main Finance. Almost 80 percent of offshore yuan trading is currently settled in Hong Kong.

The yuan has appreciated 1.6 percent against the greenback this year, the only gainer among Asia’s 11 most-traded currencies, according to data compiled by Bloomberg. The currency rose 0.05 percent yesterday to 6.1350 per dollar in Shanghai.

Discounts Offered

Half of the international companies surveyed in Hong Kong and 30 percent of those in China are using the yuan in cross-border business, HSBC said. More than 50 percent of the Chinese businesses polled would offer discounts of as much as 5 percent for transactions in the currency.

There’s room for yuan usage to grow further, said Hong Kong-based Constantinides. About 60 percent of Chinese companies interviewed said their counterparties are unwilling to consider a yuan transaction. Only 11 percent of companies in Singapore and the U.K. use the yuan, while the ratios are 9 percent in Germany and the U.S., and 7 percent in Australia.

Many companies, including in China itself, don’t know how to use the yuan effectively in international trade, said Constantinides.

“The huge component is education and to let clients know the options they can have,” said Constantinides, adding that opportunities in the country, in terms of manufacturing and the growing middle-class consumer base, aren’t going to stop.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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