Milestone of CCB shows growing role of RMB

The wide gaps in interest rates between China and the United States can facilitate the development of the offshore renminbi market, which, in turn, could help further internationalize the Chinese currency, said experts.

Their comments were made when China Construction Bank's London branch saw its cumulative clearing value top 100 trillion yuan ($13.8 trillion) by May 22, sustaining its position as the largest offshore RMB clearing bank outside Asia for the eighth consecutive year.

According to Yang Aimin, head of CCB's London branch, this achievement is inseparable from the various business innovations made recently, like RMB syndicated loans for mergers and acquisitions, issuance of offshore RMB green bonds, and use of yuan-denominated bonds as qualified collateral.

"Clearing is closely linked to other financial activities — there is a whole ecosystem behind the basic service of RMB clearing," he said. "The record reflects the RMB's strengthening function in payments, investments and financing, and its growing role as an international currency reserve."

Yang added that the London branch, in collaboration with other financial institutes, has provided many investment options and liquidity for international clients. For example, the branch issued 2 billion yuan-denominated bonds in 2023, ranking first on the London Stock Exchange as a non-sovereign bond-issuing entity.

According to the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, a global financial messaging services provider, the RMB retained its position as the fourth most active currency for global payments by value for the sixth consecutive month in April, with a share of 4.52 percent.

Li Yuanxiong, general manager of the Financial Markets Department of Chiyu Banking Corp Ltd, said that the interest rate of the offshore RMB is quite competitive when compared with the US dollar and other foreign currencies. In this sense, financing via the offshore RMB can be considered. Indeed, more Chinese mainland institutions have been raising funds via the offshore RMB in Hong Kong since 2022. This is also conducive to the internationalization of the Chinese currency, he said.

As of Friday, the US 10-year treasury bond yield, the benchmark for non-risk interest rate, is 214.7 basis points higher than the corresponding one in China.

Bloomberg data showed that non-sovereign entities issued 46.2 billion yuan worth of dim sum bonds — offshore yuan-denominated bonds issued in Hong Kong, in March. This value, the highest since 2007, was up 31 percent year-on-year. The combined dim sum bonds issued in the first three months also set a record high of 98.5 billion yuan.

Li Qinghe, chief fixed income analyst at Huafu Securities, said the US interest rate hikes have elevated the financing costs of dollar-denominated bonds. Some issuers have thus switched to offshore RMB bonds due to cost concerns, she said.

As calculated by Bank of China, the combined incremental value of the yuan-denominated bonds issued by overseas institutions in the Chinese onshore market, the offshore RMB bonds and the RMB loans provided by Chinese financial institutions in overseas markets neared 749.4 billion yuan in 2023, up 93 percent year-on-year.

Therefore, the RMB overtook the Japanese yen to become the world's third-largest financing currency for trade purposes last year, said Chen Weidong, director of BOC's research department.

"Against the backdrop of tightening liquidity in Europe and the US, the RMB's financing value has become increasingly noticeable, making the currency more widely accepted in the international market," he said.

Chen further said that the offshore market will be an important venue where the RMB can seek substantial development, given that China's capital account is not fully opened yet. The offshore RMB market also exerts impact on the results of China's macroeconomic policies, the stability of the country's foreign exchange market and the RMB's pricing power. A balance between the onshore and offshore markets is crucial to advance the RMB's internationalization.