Yuan rapidly gaining ground as Chinese firms plot global expansion
News Summary
The use of the Chinese yuan in cross-border payments surged by 14% year-on-year to 35 trillion yuan (US$4.9 trillion) in the first half of 2025, according to the People's Bank of China. This growth is significantly driven by Chinese companies expanding their global operations, increasingly utilizing the yuan for both financing and payments. A notable example is Sieyuan Electric, a power transmission equipment manufacturer, whose finance director, Yang Feng, revealed that 10% of the company's total orders were priced and settled in renminbi. He highlighted that mutual business partnerships among Chinese companies, often acting as both suppliers and customers, provide a strong incentive for yuan-denominated transactions.
Background
Since China launched its pilot program for cross-border yuan trade settlement in 2009, the internationalization of the yuan has been a continuous process, aiming to elevate its status in global trade and finance and reduce reliance on the US dollar. This policy aligns with China's 'Going Out' strategy, which encourages domestic enterprises to expand into overseas markets. Current global economic conditions are marked by geopolitical tensions and trade fragmentation, prompting central banks and corporations worldwide to examine the resilience of their currency and payment systems. Against the backdrop of President Trump's re-election, while US-China trade relations have seen some easing, structural competition persists, motivating China to accelerate the construction of a more autonomous financial ecosystem.
In-Depth AI Insights
What are the true drivers behind the yuan's internationalization push for the Chinese economy? The internationalization of the yuan is more than just a monetary policy adjustment; it's a critical move for China to enhance its strategic autonomy and mitigate external risks within the global economic landscape. - Geoeconomic Strategic Buffer: In an environment of escalating geopolitical uncertainty and the potential weaponization of the dollar-dominated international financial system, promoting cross-border yuan usage is a crucial means for China to circumvent sanction risks and ensure supply chain stability. - Boosting Chinese Corporate Global Competitiveness: Allowing Chinese companies to conduct overseas financing and settlements in their own currency reduces exchange rate volatility and transaction costs, thereby improving their pricing power and profit stability in international markets. - Cautious Capital Account Opening: The growth in cross-border payments is part of a gradual opening of China's capital account, enabling China to progressively enhance its financial market's attractiveness to global capital under controlled risks. What are the potential long-term implications of Chinese firms driving cross-border yuan usage? The collective overseas expansion of Chinese enterprises and their preference for yuan within their supply chains are building a self-sustaining ecosystem for the yuan, with profound long-term implications. - Formation of a 'Yuan Economic Sphere': This model could foster a yuan-centric trade and investment network, particularly in Belt and Road countries and regions with strong economic ties to China, gradually eroding the dollar's dominance in these areas. - Facilitating Digital Yuan Development: The proliferation of cross-border yuan payments also lays the groundwork for the future international promotion of the digital yuan (e-CNY), whose efficiency and traceability advantages could further accelerate the yuan's internationalization process. - Gradual Challenge to Dollar Hegemony: While unlikely to replace the dollar in the short term, this bottom-up, real-economy-driven growth in yuan usage is gradually chipping away at the dollar's global payment share, posing a structural challenge to the existing international monetary system. How should investors assess the risks and opportunities of yuan internationalization for asset allocation? Investors need to look beyond surface-level data, delving into the structural changes behind yuan internationalization and its potential impact on different asset classes. - Opportunities: Focus on investment opportunities in infrastructure, energy, and the digital economy linked to China's Belt and Road Initiative, which may benefit from increased yuan settlements. Furthermore, as China's capital account gradually opens, the attractiveness of Chinese bond and equity markets in global asset allocation will continue to grow. - Risks: Accelerated yuan internationalization may be accompanied by further relaxation of China's capital account controls, potentially leading to increased exchange rate volatility. Concurrently, geopolitical tensions could create external resistance to the yuan's internationalization process, requiring investors to be vigilant about potential policy and market backlashes.