Yuan may rival euro or yen in global trade, says banker
The Age
Wednesday February 23, 2011
THE fast-growing pool of Chinese currency that can now be tapped by foreign businesses will soon emerge as a deep bond market able to provide alternative funding for Australian companies, according to a senior banker.ANZ's Asia Pacific boss, Alex Thursby, believes the yuan may come to rival the euro or yen as one of a handful of currencies used for global trade, with its relevance to Australia magnified by the trade links between the two countries.Mr Thursby was speaking on the release of a landmark study into a fledgling Hong Kong-based market for yuan trade. The report, prepared jointly by the Asia Society and ANZ, forecasts rapid growth in yuan-denominated transactions ranging from bonds to trade finance.Before 2009, strict Chinese government controls meant the yuan had little exposure in international markets, since almost all forms of yuan holdings or transactions by foreign companies were prohibited.At the time, nearly all transactions between Chinese companies and a foreign entity had to be denominated in US dollars. But two years ago China established Hong Kong as an official market for overseas trade in the yuan. "The next stage of [yuan] development is already under way," Mr Thursby told BusinessDay. "You are seeing the equivalent of $US48 billion sitting in Hong Kong and for the past quarter this has been growing at 10 per cent a month."The issuance of yuan bonds will get deeper and deeper from international companies that have natural yuan exposure," he said.By the end last year, 50 offshore yuan-denominated bonds had been issued in Hong Kong, raising a total of 35.7 billion yuan, or the equivalent of $US60 billion. ANZ dipped its toe in the pool late last year, raising 200 million yuan, or a little over $US30 million.The average coupon rate for bond issues was about 1.5 per cent, compared with about 4 per cent for Chinese state-owned enterprises. However, transaction costs remain high as each deal has to be approved by the mainland.The market could also provide a liquidity pool for initial public offerings or lending in yuan-denominated loans.The Asia Society study forecasts growth in yuan-denominated bonds will reach as much as 750 billion yuan, or a little over $US113 billion, by 2015.
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