April 25, 2014 00:00 By Petchanet Pratruangkrai
HSBC foresees a sharp increase in the use of the Chinese yuan in global trading and payment, in particular in China's trade with emerging markets.
Also, in the next five years HSBC expects more than 30 per cent of China’s total global trade to be settled in yuan.
Wei Wei Ng, head of international countries, Asia-Pacific Global Trade and Receivables Finance of the Hongkong and Shanghai Banking Corporation ( HSBC), said yesterday that the yuan will play a more important role in global trading. Countries trading with China like Asean nations and emerging markets should prepare for more use of the yuan in international trading in order to reduce risk from exchange rate instability.
According to the financial services company, Swift, which monitors international currency flow, as of December 2013, yuan had become Europe’s second most-used currency after the US dollar.
From just 3 per cent in 2010, the yuan is now used to settle about 18 per cent of China’s trading in the global market. But the figure is expected to increase to 30 per cent of trading value in 2019. In trading with emerging markets, by 2015, the bank expects more than half of China’s trade with emerging markets, worth about US$2 trillion, will be settled in yuan.
"Companies should be aware of using a variety of currencies in trading, with yuan playing a more important role in international trading amidst China’s continued economic growth," said Ng. She added that by 2015, yuan would become one of the top-three global trading currencies. She said that although China’s economy has seen a slowdown in growth, its economy has seen a huge increase compared with other nations. In the first quarter of this year, China’s economy grew 7.4 per cent.
In addition, the HSBC reviewed that businesses still have positive outlook for the medium and long-term growth of the global economy, in particularly Asia market.
According to the latest survey of the bank, the Trade Confidence Index (TCI) in the second half of 2013 rose to 113, from 112 in the first half last year. The index above 100 shows a positive outlook.
The bank forecasts global trade growth of 8 per cent per annum until 2030. Trade in Asia-Pacific, excluding Japan, is expected to grow 10 per cent per annum to 2030.
Of the 25 countries covered by the forecast, China already accounts for almost a fifth of total merchandise trade and this share is expected to rise to above 30 per cent by 2030.
India, meanwhile, is expected to become the world’s fourth-largest exporter of goods during the same period as it would see a seven-fold increase in the value of its exports.
To ensure sustainable growth and competitiveness in global trading in the long run, Wei also suggested countries and businesses in Asia to focus more on investing in innovation and research and development.
Due to the higher cost of labour, innovation and R&D will be needed for long-term development of business.
For instance, China now spends the equivalent of 1.8 per cent of its annual GDP on R&D, a near doubling of its expenditure in the past 20 years ago.