• The development of cross-border trade strongly supports the cross-border settlement in RMB
• ASEAN and RCEP regions further promoted the RMB usage
• The continuous increase of foreign holdings in RMB denominated bond and stock market signals confidence in Chinese economy 

Although challenges remained, the past year witnessed a strong momentum in the international adoption of Renminbi (RMB) as it’s share as a reserve currency continues to increase. Claims in RMB rose to a five-year high of $336 billion (RMB 2.2 trillion) in the fourth quarter of 2021, accounting for 2.8% of the composition of world reserve currencies, the highest since RMB’s inclusion in special drawing rights (SDR) in 2016. In the latest review of the SDR, the International Monetary Fund (IMF) increased RMB’s weight to 12% from 11%.

Offshore RMB deposits continued to grow in 2021. Hong Kong has still the largest offshore RMB deposits, according to the Hong Kong Monetary Authority (HKMA), reaching RMB 927 billion ($145 billion) at the end of 2021, an increase of 28% from the previous year. The UK market has the highest growth rate of offshore RMB deposits in 2021 with RMB 84 billion ($12.9 billion), followed by Singapore with RMB 175 billion ($26.9 billion), with growth rates of 35% and 31% respectively.

Data from the Society of Worldwide Interbank Financial Telecommunications (SWIFT) shows that while the RMB has remained at the fifth spot among major international payment currencies since March 2020, its share in global payments was 2.2% as of March 2022, 0.35 percentage points higher than the share in March 2020. From December 2021 to January 2022, the proportion of RMB in global payments was once up to 3.2%, reaching fourth place in the world and surpassing the Japanese yen.

In 2022, China Construction Bank (CCB) in partnership with The Asian Banker launched an annual survey to assess the international usage of the RMB. This year’s survey further expanded to 2,546 executives from three groups of institutions, which comprise of companies and enterprises based in China (Chinese companies), companies and enterprises based outside of China (overseas companies), and financial institutions (FIs) around the globe. Although trade frictions still exist and the impact of COVID-19 has lingered, all three groups of respondents still have optimistic expectations on the future international use of RMB. 

The development of cross-border trade strongly supports the cross-border settlement in RMB

In the past five years, despite challenges such as Sino-US trade frictions and the COVID-19 pandemic, the cross-border use of RMB has shown rapid growth, which is backed by strong performance of the cross-border trade between China and the rest of the world. According to the General Administration of Customs, the total trade volume of import and export of China in 2021 amounted to $6 trillion (RMB 39.1 trillion), a year-on-year (YoY) growth of 21%. Data from the People’s Bank of China (PBOC) showed that the scale of cross-border trade settled in RMB has increased from RMB 4.36 trillion ($667.2 billion) in 2017 to RMB 7.94 trillion ($1.25 trillion) in 2021, and its proportion of total import and export trade grew from 13% in 2017 to 21% in 2021. 

Continuing the trend of last year, the percentage of Chinese and overseas companies, and FIs using RMB for cross-border trade settlement has further increased. About 88% of the overseas companies, 63% of Chinese companies and 73% of FIs said that they either maintained or increased the use of RMB in trade settlement in 2021, compared with 74%, 62% and 78% last year, respectively. In particular, the number of overseas companies that increased the use of RMB for cross-border trade settlement increased significantly from 50% in 2020 to 61% in 2021.

With the development of companies’ cross-border business, the cross-border RMB products have also become more diversified. The products address the needs of companies such as cross-border RMB liquidity management, investment and financing. In the past two years, the demands for offshore RMB cash management, offshore RMB wealth management and other products have increased significantly.

ASEAN and RCEP regions further promoted the RMB usage 

For a long time, China and the Association of Southeast Asian Nations (ASEAN) have maintained close economic and trade relationship. This year’s report specifically investigates the use of RMB for institutions in ASEAN and Regional Comprehensive Economic Partnership (RCEP) member countries or with business relationships within the region.

China has been ASEAN’s largest trading partner for 13 consecutive years, and ASEAN has become China’s largest trading partner for the second consecutive year. The signing of the RCEP will undoubtedly further promote cross-border transactions between China and related countries. Latest data showed, in the first quarter of 2022, China’s imports and exports to the other 14 RCEP member countries amounted to RMB 2.86 trillion ($440 billion), a YoY increase of 6.9%, accounting for 30% of China’s total foreign trade.

According to this year’s survey, the ASEAN and RCEP-related institutions are more interested in RMB cross-border trade settlement, offshore RMB financing products and participating in China’s capital market than other countries. They are relatively consistent with the overall survey results in cross-border direct investment, channel selection to enter the capital market, etc. However, there are differences from the overall survey results in their future choice of RMB products and the key reasons to use RMB. 

The respondents have a very positive attitude towards the use of RMB in cross-border transactions with ASEAN and RCEP member countries. About 67% Chinese companies, 80% overseas companies and 71% FIs are optimistic and 32%, 19% and 28% of Chinese and overseas companies and FIs, respectively hold a neutral view, while only 1% of the respondents have negative view.

The continuous increase of foreign holdings in RMB denominated bond and stock market signals confidence in Chinese economy 

From 2021, China has continued to demonstrate its commitment to deepen market integration with global capital markets that will further drive the demand and use of RMB, as well as related asset classes. The China Securities Regulatory Commission (CSRC) has indicated expanding the scope of both the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Stock Connect Schemes, while improving the existing Shanghai-London Stock Connect programme framework. Given the existing interlinkages between international financial markets, China is looking to source further foreign investment in various RMB-denominated Chinese asset classes by widening the channels available to foreign institutional investors. Likewise, an enhancement to China’s domestic bond market is a reflection of the investor appetite for greater exposure to Chinese RMB–denominated assets.

The share of overseas investors in China’s bond and stock market further expanded. The latest data from the PBOC showed, as of end-March 2022, overseas institutions held RMB 4 trillion ($615.4 billion) or 2.9% of the outstanding amount of bonds under custody in China’s bond market. This has significantly increased from RMB3.5 trillion ($520 billion) at the end of March 2021. Overseas institutions and individuals held RMB3.19 trillion ($490 billion) of Chinese stocks, an increase of nearly 90% from RMB1.68 trillion ($258 billion), at the end of March 2019.

This year’s survey results showed that FIs continue to expand their investments in both RMB-denominated bonds and equities, with majority of FIs respondents looking to increase the RMB-based bond holding in their portfolio to over 20% in 2022 (57%) and 2023 (62%) respectively, while 49% (2022) and 57%(2023) of FIs will enhance their equity exposure to over 20% in the next two years, signaling a greater confidence in, and resilience of, the Chinese economy.

Certainly, having the requisite market infrastructure in place is essential to cater to this increased investor demand for quality RMB-denominated assets. The draft of policy initiatives that have helped liberalise China’s financial markets now include cooperation between the US-China on audit supervision, upgrading the various stock-connect and wealth connect programmes in Greater Bay Area (GBA). It is perhaps the latter that has emerged as most significant and resonating most with 53% of FIs responded, it will increase the usage of RMB owing to this programme.