Why China’s yuan is gaining appeal
More countries find yuan financing attractive. Even without full convertibility, the Chinese currency offers something invaluable
An increasing number of China’s trade partners and members of the Belt and Road Initiative are turning to yuan financing, covering both borrowings and payments.
Australia’s BHP, the world’s largest mining company, is the latest miner to use a yuan-based spot index to price some iron ore products. This came after sealing a deal with the China Mineral Resources Group. Last year, fellow mining giant Fortescue took out a 14.2 billion yuan (US$2.1 billion) loan from two Chinese state-run banks.
Such pricing and borrowing is becoming common thanks to China’s advantage as a dominant iron ore buyer. But it’s not just minerals and miners. Pakistan is the latest Belt and Road Initiative partner to issue “panda bonds”, yuan-denominated debt sold within China. The three-year bonds, focusing on sustainable development, are mostly guaranteed by the Asian Infrastructure Investment Bank and Asian Development Bank.
Last month, Portugal became the first euro-zone nation to issue an offshore yuan bond – also called a dim sum bond – raising about 1.99 billion yuan. It was also the first within the euro zone to sell panda bonds – debt sold strictly within China – back in 2019.
Meanwhile, Beijing’s Cross-Border Interbank Payment System (CIPS) is capturing a bigger chunk of transactions as an alternative to the dominant Swift payment messaging system.