Chinese policy banks are seeking to expand lending to commodities-rich countries in Latin America using the Chinese yuan instead of the dollar, part of a broader government effort to promote international use of the yuan, according to people familiar with the matter.
Since early last year, the Export-Import Bank of China has been in discussions with the Inter-American Development Bank about setting up a fund to provide up to $1 billion worth of yuan funding for infrastructure projects in Latin America and the Caribbean, a key supplier of mineral wealth and crops to China, the people said. The fund could be launched this year, they said.
The two banks signed an agreement in September under which China Exim bank committed to offer as much as $200 million to finance trade between China and the region. At least part of that funding would be provided in yuan.
China Development Bank, meanwhile, has been raising yuan funds in Hong Kong's burgeoning yuan debt market partly to finance a portion of its 70 billion yuan (US$11.10 billion) loan to Venezuela, as part of a long-term loans-for-oil deal signed in 2010. Since mid-2010, the bank has sold about $2 billion worth of yuan debt in Hong Kong, according to data provider Dealogic. The cost of funds there is cheaper than on the mainland.
China is pushing to give the yuan a wider role in trade and investment. As the world's second-largest economy, it aspires to be a global power with a global currency. In time, it hopes that an internationally accepted yuan could emerge as a store of value on par with the dollar, euro and yen.
However, because Beijing still tightly controls the value of the yuan and capital flows, China's state-banking executives have found few takers for their yuan-denominated loans overseas, especially in developed markets such as the U.S. and Europe. "We want to make more yuan loans, but we often end up still lending in dollars," a person familiar with the policy banks said.
Chinese policy banks are focusing their yuan-loan efforts on Latin America, as China sees opportunity to raise the yuan's profile in a region that is counting on Chinese demand to help bolster its economy in the face of a likely recession in Europe and a tepid economic recovery in the U.S.
By targeting the Americas with its yuan push, China hopes to raise the currency's profile in energy and commodities trade, analysts say.
"A weak dollar has raised the cost of the commodities imported by China, so getting the yuan to play a role in pricing commodities could help stabilize commodities prices and lessen the inflationary pressure," said Ye Xiang, a former official at the People's Bank of China who now serves as a managing director at VisionGain Capital, an investment firm in Hong Kong.
China's interest in Latin America has grown exponentially in the past decade, encompassing purchases of oil, copper, soybeans and other commodities as well as helping develop infrastructure in the hemisphere to produce and deliver those products.
Trade between China and Latin America and the Caribbean surged to more than $188 billion last year from just $12 billion in 2000, according to the Inter-American Development Bank, a 48-member body that provides financing for 26 countries in the region including Argentina, Brazil, Chile, and Venezuela. China in 2008 became a member of the Washington-based bank that historically has been under the sway of the U.S.
As the yuan becomes more available in foreign markets through lending by Chinese banks, many analysts expect it to account for a bigger share of international trade settlement. Beijing started to allow cross-border trade to be invoiced and paid for in its currency more than two years ago, and since then, yuan-settled trade has grown to about 10% of China's total trade. Analysts at Deutsche Bank AG predict yuan-settled trade this year will come to 3.7 trillion yuan, or 15% of China's total trade.
Beijing's yuan-loan push also comes at an opportune time: many European banks that traditionally have dominated the Latin American market likely will be retreating amid the debt crisis plaguing the euro zone, analysts say, providing opportunities for the Chinese lenders to swoop in.
When announcing the joint agreement between China Exim bank and the Inter-American Development Bank last March to set up the yuan-denominated infrastructure fund, Luis Alberto Moreno, president of the Inter-American Development Bank, said the deal would help expand "the pool of financing available to support the regional economic development."
No comments:
Post a Comment