| HONG KONG
HONG KONG Aug 14 South Korea, a latecomer to
the offshore yuan business, is seeing strong growth in the
sector despite recent volatility of the currency and
uncertainties about China's economy.
Yuan deposits rose by $4.2 billion in July to $16.2 billion
as foreign banks in South Korea ran campaigns to entice
investors, central bank data showed on Friday.
It was the biggest monthly growth on record and also the
13th straight monthly gain, taking the yuan's market share to
25.9 percent of all foreign currency deposits, compared with
64.5 percent fpr dollar deposits.
The fast accumulation was mainly a result of Chinese banks
tapping into Korean investors who are hungry for higher-yielding
assets. The Chinese lenders then use the cheap funds in China's
The strong trade relationship between the two countries and
the growing number of Chinese visitors to South Korea have also
contributed to the expansion of the yuan pool.
"It's very convenient to convert yuan to won now in Korea,
and some big shops there even began to receive yuan payments
when you buy goods there," said Daniel Chan, director at
Brilliant & Bright Investment Consultancy in Hong Kong, who
visited the country in July.
"Several years ago when I was there, I had to first convert
the yuan to dollars and then to won. My feeling is that South
Korea's interest in having more yuan reserves has been
increasing over the past few years," Chan said.
In April 2012, the Bank of Korea announced it had been
approved to purchase 20 billion yuan ($3.25 billion) worth of
Chinese bonds and China's official Xinhua news agency reported
in July that Korea had begun making purchases.
The country was assigned a yuan clearing bank in July this
year and was granted an 80 billion yuan ($12.98 billion) quota
to invest in the world's seocond-largest econmomy's capital
With the quick growth of yuan deposits in South Korea,
companies there have also started to switch some of their dollar
settlements to the yuan as part of their global development
South Korea's yuan payments value in June rose more than
six-fold from a year earlier, taking it to eighth position in
the world for yuan payments excluding China and Hong Kong,
according to global transaction services organisation SWIFT.
For the month, 68.9 percent of all direct payments between
South Korea and China/Hong Kong were in yuan, up from 32.8
percent from the same period last year.
"Korea's increasing use of the RMB is indicative of the
continued maturing of this important currency," said Martin
Tricaud, CEO for HSBC Korea.
Despite the rapid growth in South Korea, an index that
tracks the progress of yuan business activity in major offshore
yuan hubs recorded the slowest growth in almost two years,
reflecting concerns about a sharp selloff in the currency
earlier this year and signs of weakness in China's economy.
The Standard Chartered Renminbi Globalisation Index reached
1,888 in June, up 0.3 percent from the previous months and 75.8
percent from a year eariler, but it was the slowest grwoth rate
in 20 months.
WEEK IN REVIEW:
* Thes yuan is expected to change hands at 6.17 yuan a U.S.
dollar in one month, 6.13 yuan in six months and 6.05 yuan in a
year, a Reuters poll found last Friday, as markets expect its
central bank to be more comfortable with a stronger currency as
the economy recovers.
* Bank of China is set to raise more than 2
billion yuan in "Formosa" bonds issued in Taiwan and sold in
Europe later in 2014 - the latest sign of warming financial ties
across the Taiwan Strait, the Economic Daily said on Thursday.
* The amount of money flowing into China's economy slowed to
the lowest level in nearly six years in July, adding to fears
that a sustained recovery may be at risk in the second half of
the year despite government efforts to shore up growth.
* The risk related to the exposure of Hong Kong banks to
mainland China is controllable, the chief executive of the
city's central bank said on Tuesday, playing down concerns the
territory's ties with the mainland is making its financial
CHART OF THE WEEK:
South Korea's yuan business sees strong momentum: link.reuters.com/mum62w
Banks launch new yuan FX options for companies in China
More stories about the CNH market
Daily onshore yuan reports
Daily China money market reports
Offshore yuan rate Onshore yuan rate
Offshore yuan dealt Onshore yuan on CFETS
THOMSON REUTERS SPEED GUIDES
(1 US dollar = 6.1613 Chinese yuan)
(Editing by Kim Coghill)