Greater yuan use urged in China-Mideast transactions

Greater yuan currency usage in bilateral transactions will provide further impetus for trade and investment links between China and the Middle East resulting in benefits for both sides, Hong Kong Monetary Authority Chief Executive Norman Chan said.

Trade activities between the United Arab Emirates and China have grown more than 10 times over the past decade, from less than $3 billion in 2001 to $37 billion in 2011. China is the UAE's second-largest non-oil trading partner and the second-largest source of UAE's imports, Chan said.

He made this remark on Monday at a seminar in Dubai as part of the authority's overseas roadshows to promote Hong Kong as an offshore yuan business center.

According to the authority, Chinese exports to the Middle East countries jumped to $47 billion in 2011 from $18 billion in 2006; while its imports from the Middle East nations soared to $87 billion from $27 billion in 2006.

"As yuan internationalization progresses, the rapidly expanding offshore yuan market and greater access to the onshore yuan market are also providing opportunities for the public and private asset managers in the Middle East to diversify and enhance their portfolio investments," Chan added.

According to the authority's data, China has made outbound direct investment of $301 million in UAE in 2011, a 10-fold increase in the last five years. And China is also diversifying its investment in the UAE, putting more money into the nation's telecom and construction sectors. UAE also possesses one of the world's largest fiscal reserves - as its sovereign wealth fund is estimated to reach $800 billion.

The central banks of China and the UAE are strengthening bilateral financial cooperation. The People's Bank of China and the Central Bank of UAE signed a currency swap agreement in January 2012, which allows a currency swap size of 35 billion yuan for a tenor of three years.

Releasing the latest offshore yuan financial business figures in Hong Kong, the authority said the yuan trade settlement transactions handled by banks in Hong Kong registered some 30 percent growth and exceeded the 2.6 trillion yuan mark in 2012. The Hong Kong Renminbi Real Time Gross Settlement system is handling a growing volume of cross-border and offshore transactions, with average daily turnover amounting to some 260 billion yuan recently compared to 5 billion yuan in 2010.

Regarding other yuan-denominated financing activities, size of yuan-denominated dim-sum bond issuance grew 60 percent to 230 billion yuan in 2012.

Hong Kong possesses the world's largest yuan liquidity pool outside the mainland-as the city's yuan deposits and certificates of deposits totaled 700 billion yuan in 2012, registering a 5 percent growth compared to 2011 and a 10 times surge compared to 2009.