CNH Tracker-Australia's yuan business to catch up with peers as clearing bank deal looms

HONG KONG, July 24 Wed Jul 23, 2014 11:35pm EDT

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HONG KONG, July 24 (Reuters) - Opportunities for Australian companies to participate in the burgeoning yuan market are expected to increase as the country is close to signing a deal with China to facilitate trade and investment settled in the Chinese currency.

Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said on Wednesday that the central bank was working with the People's Bank of China (PBOC) on a memorandum of understanding that would allow a clearing bank to be selected over the coming months.

Such a deal would create the world's tenth offshore yuan hub with its own yuan payment and clearing system, after Beijing announced earlier this month it would assign yuan clearing banks to Paris and Luxembourg.

Yuan clearing banks not only make cross-border yuan payments more timely and convenient, but increase the awareness of yuan usage among local companies and help yuan deposits to accumulate in a country.

Australia still lags behind its global competitors in adopting the "redback", despite an early start in 2013 when a private sector-led initiative kicked off with the aim of expanding yuan business in the country.

China is Australia's single biggest export market with two-way trade flows of around A$150 billion ($141 billion) in 2013. But at present less than 1 percent of Australia's merchandise trade with China is invoiced in the yuan, also known as the renminbi (RMB).

A survey by HSBC which interviewed 1,304 international companies during April and May revealed that 9 percent of the Australian companies trade in the yuan, much lower than the 22 percent global average.

It also found that 66 percent of non-yuan users in Australia don't see a clear benefit from using it, while half don't believe their Chinese counterparts are willing to use the yuan, compared with 44 percent and 42 percent globally.

"Australian businesses risk falling behind global rivals in trade competitiveness by failing to recognise the potential business development opportunities linked to RMB," said James Hogan, head of commercial banking for HSBC in Australia.

This lack of awareness and receptiveness among Australian companies to adopt the yuan as part of their broader China strategy is alarming, Hogen added.

The potential is huge, though, as China is already the top buyer of resources in Australia with a dominant share of 52 percent, and the second in energy purchases following Japan.

Still, the commodity sector remains a bottleneck for the quick expansion of yuan usage worldwide. Most of the trade transactions switched from dollars to the yuan so far have little to do with commodities, where the dollar has retained a dominant position in invoices, transactions and trade finance.

If the Chinese currency can be adopted in Australia's commodity exports, yuan trade settlement will no doubt see a significant increase and the internationalisation expedition will also enter into a new stage.

China's thirst for minerals has fuelled more than 20 years of unbroken economic growth in Australia. The two countries are determined to sign a bilateral free trade agreement by the end of the year.

Australia now has a swap line worth 200 billion yuan ($32.29 billion) with China, the fifth largest among all the 24 swap lines China has signed. The Australian dollar was also allowed to be traded directly with the yuan last year.

WEEK IN REVIEW:

* China signed a bilateral currency swap agreement worth 150 billion yuan ($24.17 billion) with the Swiss central bank, which can invest up to 15 billion yuan in China's bond market.

* Taiwan's stock market regulator is studying a plan to ease rules to make it easier for China's qualified domestic institutional investors (QDII) to invest in local mutual funds, an official said on Monday, in the latest sign of warming financial ties across the Taiwan Strait.

* China may see more capital inflows in the rest of 2014 after experiencing some money flight in recent months, the country's foreign exchange regulator said on Wednesday, as the yuan recovers due to improved confidence in the economy.

CHART OF THE WEEK:

China has signed swap lines with many countries in the past few years in an effort to achieve greater overseas use of its currency: link.reuters.com/fuf67v

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($1 = 6.1945 Chinese Yuan) (Reporting by Michelle Chen; Editing by Kim Coghill)

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