FT: Overseas renminbi lending surges as China steps up campaign to de-dollarise

Beijing’s push for renminbi trade and investment will speed move from dollar-based to multi-polar monetary system, analysts say, ‘Financial Times’ quotes.

China’s overseas lending in renminbi is soaring, as Beijing steps up its efforts to expand the currency’s role in international finance and reduce the country’s exposure to the US dollar.

External renminbi loans, deposits and bond investments by Chinese banks quadrupled to more than Rmb3.4tn ($480bn) over the past five years, as policymakers more aggressively pursue their long-term goal of reducing the centrality of the dollar in global financial flows.

As part of this campaign, China is also opening more channels for foreign investors to buy renminbi-denominated bonds. But officials have focused their efforts on boosting the renminbi’s role in trade, partly as a defence against policies enacted in the US and elsewhere that weaponise the dollar — such as this week’s EU sanctions targeting Chinese banks accused of helping Russia to secure weapons parts overseas.

Recent data from China’s State Administration of Foreign Exchange shows the external fixed-income assets of Chinese banks more than doubling over the past decade to more than $1.5tn, with the share denominated in renminbi expanding rapidly to almost $484bn at the end of June. This includes $360bn of renminbi loans and deposits, up from $110bn in 2020.

Similarly, the Bank for International Settlements estimates that overseas bank lending in renminbi to borrowers in developing countries rose by $373bn in the four years to the end of March.

“The year 2022 marked a turning point away from dollar- and euro-denominated credit and towards renminbi-denominated credit” to such borrowers, the BIS said.

With interest rates in China relatively low, sovereign borrowers including Kenya, Angola and Ethiopia have converted old dollar debts into renminbi this year. Indonesia and Slovenia recently announced plans to issue renminbi bonds, and last month Kazakhstan’s development bank sold a Rmb2bn offshore bond at a yield of just 3.3 per cent.

China has further bolstered the use of the renminbi overseas through a network of offshore clearing banks, both Chinese and foreign, and through swap lines with trading partners around the world.

It comes as Beijing has pushed the use of its own cross-border payments system, Cips, where the value of transactions has risen from a negligible amount a decade ago to more than Rmb40tn in every quarter since the start of last year.

Cips transactions have expanded even as the renminbi’s share of global payments on the Swift system has fallen. Bert Hoffman, a professor at the National University of Singapore’s East Asian Institute, said this most likely indicated a migration of payments to the Chinese system — furthering Beijing’s desire to move away from a dollar-based global monetary system to a multi-polar one.

Experts agree that China has little interest in the renminbi taking the place of the US dollar in the global financial system. But by boosting the renminbi’s involvement in international trade and investment, “China may get the best of both worlds,” said Smith at Citi.

Beijing’s policies are bringing that target into view, analysts say.

“The policy is moving very gradually, but all of the elements that would make a much more rapid internationalisation work — they’re falling into place,” said Hoffman.

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