Chinese yuan, ever-more a global currency

Lee Beng-Hong, head of markets at Deutsche Bank China, rescheduled his interview with China Daily three times. He flies across the country to meet clients and business partners who want ever more to move the yuan in their pocket over the border.

A major client request is for more financial products, such as interest rate options and swaps. That would allow them to hedge bulging yuan positions, said Lee in Frankfurt-based Deutsche Bank AG's Shanghai office. The building occupies four stories in the International Finance Center skyscraper. The office houses around 500 employees, the majority working in corporate banking.

Lee said Chinese regulators will soon act to make those products a reality.

A day before Lee was interviewed on May 9, an accountant with Schneider Electric (China) Co Ltd loaned 450 million yuan ($72.93 million) to its parent company in France, Schneider Electric AG. The transaction was through a branch of Industrial and Commercial Bank of China Ltd in Beijing. It was the first time the company sent yuan home since coming to China 27 years ago. Previously, any cross-border remittances had to be transacted in foreign currencies and were subject to lengthy regulatory approvals.

The transaction was possible because of policy loosening by the State Administration of Foreign Exchange, the central bank unit managing China's $3.95 trillion in foreign exchange reserves. Earlier this month, SAFE allowed foreign companies in China to move funds freely between domestic and foreign accounts to a set quota it extended in a trial project nationwide.

That policy change, along with other similar policy-loosening from the central bank, has piqued excitement among global banks in China, eager to leverage their expertise in transacting internationally.

The same day Schneider Electric wrote the check, Deutsche Bank opened its seventh location in China in the China (Shanghai) Pilot Free Trade Zone. It's focused on yuan-denominated cross-border transactions and services range from yuan cash pooling and trade financing to cross-border lending and interest rate hedging.

One of Deutsche Bank's latest clients in the zone is Austria's Lenzing Group, a textile fibers maker. The bank has helped the company move funds between accounts inside and outside China.

Deutsche Bank is the 11th foreign bank to establish a foothold in the zone, set up in September as a testing ground for China's economic reforms that include capital account convertibility and interest rate liberalization.

"Surely but slowly global use of the yuan will rise as China gradually makes the currency fully convertible in both trade and investment," Lee said. "That spells huge opportunities for global banks like us."

Lee said the yuan's recent weakening against the dollar won't harm global enthusiasm about holding yuan. That's counter to some analysts' belief that many will stop yuan transactions as depreciation limits investment returns.

"Corporations have real demands to use the yuan as one of their payment currencies," Lee said. "The demand, supported by China's steady economic growth, far outweighs the exit of some speculators."

The yuan has gained about 20 percent against the dollar since 2005, providing an effectively guaranteed return that attracts investors. It weakened significantly this year amid wider fluctuations.

Data from the Society for Worldwide Interbank Financial Telecommunication show yuan payments remain strong.

According to the agency, the yuan ranked seventh in global payment currencies in March, rising to record activity share of 1.62 percent, compared with the US dollar's 40.19 percent.

gaochangxin@chinadaily.com.cn