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Yuan use gains traction as trade link with China grows

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Wed, 25 October 2017, Hor Kimsay, With trade and investment between Cambodia and China steadily increasing, Chinese currency-backed settlements for cross-border commerce have sharply taken off as the Kingdom continues to deepen its economic dependency on the northern giant, a central bank official said yesterday.

Updated on : 26-10-2017


Yuan use gains traction as trade link with China grows

Yuan use gains traction as trade link with China grows

With trade and investment between Cambodia and China steadily increasing, Chinese currency-backed settlements for cross-border commerce have sharply taken off as the Kingdom continues to deepen its economic dependency on the northern giant, a central bank official said yesterday.

Speaking at a workshop organised by the National Bank of Cambodia (NBC) and the Industrial and Commercial Bank of China Limited (ICBC), Chea Serey, director general of NBC, said that in 2016 alone cross-border settlements in yuan amounted to 2.5 billion ($377 million), or approximately 7 percent of the two countries’ total trade and investment.

While Serey admitted that this was still a small part of the total bilateral trade between the two countries, she was optimistic that yuan settlements would further increase as more banks facilitate transactions and Chinese investors look to de-risk away from the US dollar.

“[Chinese investors] are reducing currency risk as they won’t have to exchange yuan to US dollar and back to yuan and Cambodians won’t have to exchange US dollar into riel,” she said. “Once Chinese investors exchange yuan for riel to settle trade with Cambodian counterparts, the demand for riel will eventually increase as well.”

The Bank of China and ICBC are the only two Chinese banks operating in Cambodia and together hold total assets valued at $2.1 billion, equal to 7.7 percent of Cambodia’s financial asset portfolio.

According to NBC data, there are 17 banks in Cambodia that handle yuan transactions, up from 11 in 2014. But only four – ICBC, the Bank of China, Canadia Bank and First Commercial Bank – allow for yuan deposit accounts.

From 2004 to 2016, the total value of imports from China to Cambodia amounted to $23.4 billion, equal to nearly one-third of Cambodia’s total imports, NBC data show. In 2016 alone, the value of Chinese imports amounted to $4.5 billion, an increase from 15 percent compared to 2015.

Meanwhile, China accounts for Cambodia’s largest foreign tourist base, with 830,000 visitors entering the Kingdom in 2016, an increase of 19.5 percent compared to the previous year.

Pan Hongsheng, deputy secretary-general of the People’s Bank of China, said yesterday that the yuan is increasingly gaining strength internationally as an official payment currency, especially after it was included in the International Monetary Fund’s Special Drawing Right (SDR) basket in 2016. The yuan is the fifth currency recognised by the SDR after the US dollar, euro, Japanese yen and the British pound.

“For Cambodian merchants, yuan settlements can facilitate payments between Cambodian merchants and Chinese tourists and will stimulate their consumption,” he said. “Tourists will pour into Phnom Penh and Siem Reap if more yuan settlement activities are available.”

Lim Heng, vice president of Cambodia Chamber of Commerce, said that while the US dollar will continue to dominate bilateral trade and settlement transactions with China for the foreseeable future, more currency flexibility is beneficial.

“It is good that we have more options to use other currencies to pay for goods that we import or export,” he said. “It is very risky if we rely too much on only one currency.”

Source: http://www.phnompenhpost.com/business/yuan-use-gains-traction-trade-link-china-grows

 

 


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