 "Yuan (Photo: Bloomberg)")
George Lei, Tania Chen & Jacob Gu
China is putting the yuan front and centre in its fight back against the US’s unique influence over global money.
President Xi Jinping’s government has been busy striking deals over the past year to expand the ways in which the currency is used, with new agreements linked to the renminbi stretching from Russia and Saudi Arabia to Brazil and even France.
While the US remains the world’s clear financial hegemon, these moves are helping China to carve out a bigger place for itself in the international financial system. They come at a time when geopolitical strains are growing and global commerce is becoming an ever-more-active battleground.
Antagonism has flared between the two economic titans over issues ranging from trade and Taiwan to TikTok and technological know-how. Hard-hitting sanctions on Russia have revealed a new willingness by the US to weaponise the dollar. Together, that’s done more to promote China’s yuan over the past year than Xi’s government achieved in the preceding decade.
The ramp-up is also a response to China’s shifting position within the global economy as it emerges from the era of Covid lockdowns with growth running more slowly than it once did and the global push for freer trade in retreat. That’s spurred leaders in Beijing to up the ante in building the country — and in particular its currency — into an alternative pole for international finance, trade and lending.
The nation is working to demonstrate “that there’s a world outside of the US and the Western world,” said Adrian Zuercher, head of global asset allocation and co-head of global investment management for the Asia-Pacific region at UBS Global Wealth Management’s office in Hong Kong. “You’re sending a very strong signal to the US by basically saying we don’t need you and we don’t need your US dollar.” That message is resonating in some parts of the world. Unease with the dominance of the US and the greenback is pushing some countries and companies to diversify away from America and Europe.
The use of the renminbi in contracts for everything from oil to nickel is gathering speed, with the currency’s share of global trade finance tripling since the end of 2019. That’s still a tiny portion of global transactions, and the currency remains tightly controlled by Chinese authorities. But sanctions that ensnared Moscow following its invasion of Ukraine have added to that pace. The yuan’s usage in Russian export payments surged 32-fold last year alone.
Going global Xi, who is embarking on his second decade in charge of the People’s Republic, has taken steps to promote the country’s reputation abroad, even as he focuses on implementing reforms and bolstering growth at home. His first foreign excursions after lifting lockdowns were to key energy suppliers Saudi Arabia and Russia.
Trips to Beijing by Brazilian President Luiz Inacio Lula da Silva and France’s Emmanuel Macron were accompanied by a host of new commercial agreements. And China was central to brokering an Iran-Saudi detente.With the US, though, flashpoints have multiplied — from feuds over spy balloons to semiconductor technology.
The ostracism of Russia in the wake of Vladimir Putin’s war in Ukraine has provided China with an important opening to demonstrate just how the yuan can be used. It also stoked concern among some nations about being beholden to the dollar and the euro, the two biggest currencies.
