March 1, 2012 / 8:01 AM / 6 years ago

CNH Tracker-China eyes Middle East as next offshore yuan destination

 By Michelle Chen	
 HONG KONG, March 1 (Reuters) - After the impressive
success of the offshore yuan trading in Hong Kong, China has now
zeroed in on a new hub for its overseas renminbi trading - the
Middle East.	
 The three-year dream run of the offshore yuan trade
settlement plan has given Beijing confidence to look beyond the
region and boost the renminbi's muscle power in a big area: oil.
 Industry sources told Reuters last Thursday that the Dubai
International Financial Centre (DIFC), the United Arab Emirates'
financial hub, may permit transactions in Chinese yuan from this
 "The internationalization strategy should move westward to
find a supplementary region to the existing Asian region," said
Cao Tong, senior vice president at CITIC Bank
 , adding that the oil-rich Middle East,
Central Asia and Russia would be a good breakthrough.    	
 The amount of trade settled in yuan jumped sharply to 2.08
trillion yuan ($330 billion), grabbing a 10 percent share of the
total trade volume in the currency, compared with only 2 percent
a year ago.	
 This is only going to get bigger with powerful regional
blocs like ASEAN, an association of ten southeastern Asian
countries, set to sign trade pacts with Beijing. 	
 China has also signed bilateral currency swap agreements
with Turkey, Malaysia, United Arab Emirates, Kazakhstan and 12
other countries since 2008 with the total amount a quarter of
its total trade.	
 The world's second-biggest economy exports products of daily
use and construction machines to Middle East and imports crude
oil from the region. Crude oil is among the top three products
by value in China's worldwide import list in 2011, according to
China customs figures.	
 If part of trade is redenominated in yuan, it will not only
boost the amount of yuan trade settlement, but also pump more
funds into the shrinking offshore yuan pool which contracted for
a second consecutive month to 576 billion yuan in January.	
 What is more important is that if yuan is accepted and used
by these oil producing countries, it will significantly enhance
the currency's status in the global currency system. 	
 In fact, the dollar's status as a global reserve currency is
to some extent also because oil contracts are priced and settled
in that currency.	
 China has already started accelerating its opening up of
capital account by allowing yuan FDI and ODI recently, together
with an ambitious outline of making Shanghai a global renminbi
products innovation, trading and clearing center by 2015.	
 The timing could not have been better as the yuan is
steadily appreciating which makes it more attractive, while the
main currency-issuing countries are printing notes to solve
their debt woes.	
 * The Renminbi Kilobar Gold has recorded satisfactory
transaction volumes since its launch in October last year,
according to Chinese Gold & Silver Exchange Society. Currently,
daily transaction volume is at around 4,100 kilograms.	
 * Clifford Lee, DBS head of fixed income, expects total
gross issuance of CNH bonds to reach 250 billion yuan this year,
up from 189 billion last year. 	
 The best time to issue CNH bonds will be the second half of
this year when investors look to re-invest proceeds from
maturing bonds. About 80 billion yuan worth of bonds and CDs
will mature this year.	
 * Jun Ma, greater China chief economist at Deutsche Bank
calls for quicker opening up of China's capital account. The
bigger challenge now is not restriction over overseas direct
investment or trade financing, but the barrier to enter the
onshore capital market.	
 * More dim sum from Japan. Trading company Mitsui & Co
priced its debut five-year dim sum deal at 4.25 percent, raising
500 million yuan ($ 79 million). Another Japanese firm
Mitsubishi UFJ Lease & Finance also issued 300 million yuan ($
48 million) three-year dim sum bond.   	
 CNH deposits extend decline:	
 The amount of yuan deposits in Hong Kong banks declined for
the second consecutive month in January and now stand at about 9
percent of total deposits in the former British colony. CNH
outflows may have been due to the increased issuance of bonds
and certificates of deposits and the launch of a FDI scheme.    	
 YTD dim sum bond issuance:	
 Book runner:         Proceeds (RMB mln):       # of issues:	
 1. HSBC                 7,487.0                     27 	
 2. Standard             5,338.5                     11 	
    Chartered Bank 	
 3. Bank of China        4,400.0                      2	
 4. Barclays Capital     2,183.0                      4 	
 5. RBS                  1,558.0                      3 	
 YTD synthetic RMB bond issuance:   	
 Book runner:         Proceeds (RMB mln):       # of issues:	
 1. Deutsche Bank       4,479.2                       3	
 2. Citi                2,912.5                       2	
 3. Bank of China       2,312.5                       1	
 4. Bank of America     2,312.5                       1 	
    Merrill Lynch	
 5. HSBC                1,248.5                       2 	
 * Thomson Reuters data as of August 4	
CNH Tracker-Swift change from NDF catches traders by surprise	
Hong Kong yuan deposits fall 2.1 pct in Jan vs Dec 	
More stories about the CNH market                 	
Daily onshore yuan reports                        	
Daily China money market reports                  	
Offshore yuan rate    Onshore yuan rate  	
Offshore yuan dealt Onshore yuan on CFETS 	
 (Editing by Ramya Venugopal)	

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