The shift demonstrates that the Asia-Pacific region is at the forefront of the renminbi’s gathering acceptance as a currency for international trade settlement and investment. The Chinese currency was used in January-April for 31 per cent of payments between China (including Hong Kong) and the rest of the Asia-Pacific region, up from 7 per cent back in April 2012, Swift said.
The currency’s ascent came mostly at the expense of the US dollar, which was used in just 12.3 per cent of payments in April, down from 21.7 per cent in April 2012, Swift figures show. The yen and the Hong Kong dollar were also displaced, though to a lesser degree, by the rise of the renminbi (see table).
Singapore, Taiwan and South Korea are now using the renminbi for the majority of their payments with China, according to Swift, while the recent induction of clearing centres in Malaysia, Thailand and Australia should underpin the trend. Out of the 26 countries in the region, only nine are “low users” — places that use the renminbi for less than 10 per cent of their transactions with China, down from 19 in 2012.
Increasingly, it is investment rather than trade that drives the renminbi’s popularity. The opening of the Shanghai-Hong Kong Stock Connect, which allows offshore investors to use renminbi to invest in Shanghai’s A-share market, has underpinned demand, while a 68 per cent year-on-year increase in foreign investors’ holdings of domestic Chinese bonds during 2014 has also spurred demand.
Such overseas interest in domestic Chinese bonds is expected to continue, say fund managers, because the yields available are far superior to those that characterise fixed-income opportunities in Europe, Japan and elsewhere in developed markets.
The China Universal Enhanced Bond Fund, for example, returned 13.12 per cent in 2014, according to China Universal, a Chinese asset manager.
“We are definitely seeing increasing interest from European investors, both retail and institutional, who are hunting for yield in a world that is not really delivering their return targets,” said Christopher Gunns, a managing director at China Universal.
In addition, foreign investors currently hold only a tiny share, at 1.9 per cent or Rmb672bn, of China’s total onshore bond market, suggesting ample room to boost their involvement providing that Beijing approves sufficient investment quotas.