Import export firms in Hong Kong are leading the way in lending support to the internationalization of the yuan. The latest HSBC Trade Confidence Index survey found that 19 percent of local import export firms plan to use the yuan as their primary currency for trade settlement in the next six months. .

The survey covered a total of 17 markets across the globe and collected the six-month views of 5,124 exporters, importers and traders from small and medium enterprises. Findings of the survey showed that while the US dollar will remain dominant as a global trade settlement currency, 56 percent of exporters and importers in Hong Kong will settle some trade transactions in yuan over the next six months, followed by 49 percent in Malaysia, 17 percent in Singapore and 10 percent in Indonesia.

Meanwhile, 19 percent of respondents from Hong Kong said they will use yuan as their primary currency, the highest level in the region.

Chris Lewis, HSBC head of trade and supply chain for Greater China, said that "trade between Greater China and Asia continues to perform robustly. Clearly, as fast-paced developments in Renminbi internationalization continue to evolve, we are seeing a shift in the region's trade sector with greater export and import volumes expected to be settled in Renminbi in the next six months."

Figures from China's Ministry of Commerce showed that in the first four months of 2010, China's trade with ASEAN (Association of Southeast Asian Nations) registered a year-on-year increase of 58.5 percent to $87.1 billion. Currently, China is ASEAN's largest trading partner in terms of volume. During the same period, trade between the mainland and Hong Kong rose 31.4 percent to $61.8 billion.

The survey findings revealed that traders in the region voted for foreign exchange volatility as the biggest concern. With a surge in trade with China, payment settlement in Renminbi is in the interests of exporters and importers, who are involved in bilateral trade.

As the yuan becomes more internationalized, Hong Kong will play an important role in the process as it actively builds up its status as an offshore center for yuan products. The increase of trade settlements using yuan will extend the use of the currency as well as expand the pool of offshore yuan in the city. Depositors primarily seek returns on the Chinese currency through yuan products which are offered in Hong Kong.

Figures from the Hong Kong Monetary Authority show that the city's yuan deposit base currently stands at 103.7 billion yuan.

Banks from both the mainland and abroad have been making serious efforts in issuing yuan bonds, with the latest offering from Deutsche Bank, which completed its first yuan-denominated debt offering in the city on September 20. On the corporate side, McDonald's became the first foreign company to issue yuan bonds in Hong Kong on August 20.

China Daily

(HK Edition 09/30/2010 page3)