SWIFT reports RMB payments volumes resumed growth after two months of decline.
The renminbi payment volumes are back on a positive track after having slipped for two months, according to SWIFT. Meanwhile, yuan bond issuance, also known as dim sum bonds, is expected double in 2012 vs. 2011.
The earlier renminbi (RMB) payment volume slip, likely an effect of both slowing demand from trading partners battling crisis such as those in the US and the eurozone, and the disruption to the global manufacturing sector caused by this summer’s Thailand flooding, began after an August peak. This caused speculation as to whether the slowing was an ongoing trend or just a hiccup during the long march of the yuan.
But after that two-month hiatus, the RMB seems to have come back on track in November to becoming more popular as a trading currency, especially with China’s Southeast Asian neighbors; at the August peak, volumes were up more than 1000 percent vs. the period a year ago. Despite the recent fluctuation in the exchange rate of yuan, some analysts don’t see that as a major obstacle for the growth in RMB trade settlement, as demand from corporations is the biggest driving force for cross-border trade settled in RMB (see related story here).
SWIFT reported that in November, 1,085 financial institutions in 95 countries had financial transactions in RMB, up from 1025 institutions in 88 countries in the previous month. According to a SWIFT white paper, more than 10 percent of China’s cross-border trade is now settled in RMB. “The RMB is used for retail business in Singapore, and there’s active FX trading around the RMB in London,” SWIFT said.
But the real game in town still takes place in Hong Kong, an offshore RMB center supported by the China central government, the scale of the volume of trade settled in RMB, RMB deposits and RMB bonds in Hong Kong all recorded substantial growth in 2011.
In the first nine months of this year, the mainland’s foreign trade, which was settled in RMB and handled by banks in Hong Kong, amounted to about 1.5 trillion yuan. This is almost four times the 400 billion yuan for full year 2010 and has further cemented Hong Kong’s role as the global RMB settlement center.
Additionally, dim sum bonds and RMB IPOs stand ever more popular. According to Bloomberg, using data from several underwriters, dim sum bond sales in Hong Kong could double in 2012, hitting 300 billion yuan vs. 150 billion yuan in 2011. This is a result of Chinese companies “[taking] advantage of lower borrowing costs and European issuers seek alternatives to euro fundraising, the market’s biggest underwriters predict.” Bloomberg used median estimates from HSBC Holdings, Standard Chartered and Deutsche Bank, the three biggest bond underwriters.
In the first 10 months of 2011, 78 entities issued some 100 billion yuan worth of dim sum bonds, according to official data. In 2010 the amount was roughly 36 billion yuan. The latest company to tap the dim sum market was Mexican telecom company, Telmex, which announced plans to issue 500 million yuan (about $79mn) of bonds in Hong Kong.