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Opinion
SCMP Editorial
Editorial
SCMP Editorial

Why China’s yuan is gaining appeal

More countries find yuan financing attractive. Even without full convertibility, the Chinese currency offers something invaluable

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Many mainstream economists think the yuan faces insurmountable barriers to internationalising as a major currency because of domestic capital controls. They are not wrong, but Beijing has different goals. Photo: Shutterstock
SCMP Editorial
Editorials represent the views of the South China Morning Post on the issues of the day.
China wants it both ways with the yuan, and it may just succeed despite conventional economic wisdom. Many mainstream economists think the yuan faces insurmountable barriers to internationalising as a major currency because of domestic capital controls. They might be right technically, but Chinese policymakers may have different goals. Full convertibility means abandoning capital controls, something Beijing is unwilling to give up any time soon.

An increasing number of China’s trade partners and members of the Belt and Road Initiative are turning to yuan financing, covering both borrowings and payments.

Australia’s BHP, the world’s largest mining company, is the latest miner to use a yuan-based spot index to price some iron ore products. This came after sealing a deal with the China Mineral Resources Group. Last year, fellow mining giant Fortescue took out a 14.2 billion yuan (US$2.1 billion) loan from two Chinese state-run banks.

Such pricing and borrowing is becoming common thanks to China’s advantage as a dominant iron ore buyer. But it’s not just minerals and miners. Pakistan is the latest Belt and Road Initiative partner to issue “panda bonds”, yuan-denominated debt sold within China. The three-year bonds, focusing on sustainable development, are mostly guaranteed by the Asian Infrastructure Investment Bank and Asian Development Bank.

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