China’s yuan strategy is not paying off with its trading partners, survey finds, as ‘political and market risks are uncontrollable’

In March, a total of 1,657 companies were surveyed. About 71 percent are private companies, 13 percent are state-owned companies, and 15 percent are foreign-funded companies.

The findings reflect the challenge Beijing faces in trying to turn the yuan into a global currency capable of challenging the global hegemony of the US dollar that gives Washington considerable power to impose devastating sanctions and wage other forms of financial warfare.

The yuan’s internationalization index, as measured by China’s central bank, has improved considerably since 2009, but it still lags far behind the dollar and euro in terms of trade settlement, international payments, foreign exchange trading and the bank’s foreign reserves. central.

The new survey found that other obstacles included fluctuations in the yuan exchange rate, interest rate differentials between the yuan and foreign currencies and obstacles to cross-border capital flows.

More than 63.84 percent of respondents cited “complexity of policies” as the main obstacle, and more than 40 percent said that difficulties lie in the “compatibility of laws and regulations” and “barriers to Capital fluxes”.

Nearly 30 percent cited the yuan’s “limited investment scope,” while about 20 percent pointed to the “lack of hedging tools.”

George Lu, chief operating officer of a European medical device company in the Yangtze River Delta, said many original equipment manufacturers (OEMs) will accept dollar payments from their overseas headquarters and then convert that money to yuan to pay production and operation costs. Any surplus yuan is held in Chinese bank accounts.

“The yuan-denominated figure in our bank account is used only for short-term wealth management products and then converted back to US dollars when the exchange rate is good,” he said.

“We are not considering other yuan businesses for the time being, because political and market risks are uncontrollable.”

Kent Liu, a digital printing producer based in Guangzhou with factories in America and Southeast Asia, said: “Customers in Southeast Asia are more likely to settle on yuan, but most of them are mainly of Chinese origin. Clients in other foreign markets currently prefer to settle in dollars, because the yuan is still not very useful for investing in their countries.”

The survey showed that the majority of respondents were involved in cross-border yuan trade deals or yuan-related foreign exchange transactions.

However, less than a quarter of them carried out yuan trade financing, yuan deposits or yuan-denominated wealth management businesses.

As for their plans for the second quarter, just under 80 percent of companies had no plans to increase their yuan settlements; almost 10 percent planned to increase those settlements by up to 10 percent; 9 percent planned to increase the amount between 10 and 50 percent; and only 2 percent planned to increase the amount by 50 to 100 percent.

The report concluded that a global rise in economic and political uncertainties, increased volatility in international financial markets, rising geopolitical risks and intensifying trade frictions between China and the United States had a significant impact on cross-border deals in yuan.

He urged the authorities to make greater efforts to simplify cross-border yuan settlement processes, reduce transaction costs, and support cross-border yuan settlements for new foreign trade businesses, while improving the financial function of the currency and promoting the use of currency in the trade of major raw materials. such as oil, gas and iron ore.