Gulf states using more Chinese yuan for trade than ever – SCB

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One hundred-yuan Chinese banknotes pass through a currency counting machine at the Hang Seng Bank Ltd. headquarters in Hong Kong. Photo - Jerome Favre/Bloomberg

A senior executive at Standard Chartered said growing trade ties with China and volatility in dollar and euro is pushing Gulf states toward an increased use of the Chinese yuan for trading.

“We are seeing an increasing interest from the GCC (Gulf Cooperation Council) in renminbi,” Farooq Siddiqi, managing director for transaction banking at Standard Chartered, said.

He told reporters at a roundtable event in Dubai that both trading partners need to hedge against dollar exposure.

Gulf states have increased the sale of crude oil to Far Eastern countries like China and South Korea in a bid to compensate for a decline in oil supplies from Iran which is facing new sanctions from US and the EU.

“The Gulf states are shifting their focus towards Asia and Africa, away from the historic trade partners of US and Europe,” said Siddiqi.

The central banks of the UAE and Qatar have instructed lenders stop financing trade with Iran recently as US-led sanctions make it hard for companies to get paid for their transactions. Many exchange houses in the UAE are scaling back their exposure to Iran in a bid to save themselves from the wrath of US sanctions, financial sources in the UAE suggested.

Juten Arora, managing director and global head of sales for transaction banking at Standard Chartered, said more than 9% of global trade with China, worth around $330 billion, is denominated in renminbi yuan.

“This is expected to hit $1 trillion in 2020 at a growth rate of 15 per cent,” he said while reckoning double-digit growth in yuan-denominated trade with China in 2012.

Data released by Chinese central bank suggested the country’s cross-border yuan trade settlements fell to 196bn yuan ($31bn) in April from 261bn yuan in March.

Last week, the UAE Minister of Foreign Trade Sheikha Lubna Al Qassimi said the volume of bilateral trade between the UAE and China has grown at a remarkable annual rate of 35% over the last 10 years and surpassed $35 billion during the last 12 months. She also underlined that China is the largest consumer of energy resources produced by the Gulf Cooperation Council (GCC) countries, as well as the largest source of imports.

Both China and the UAE signed a three-year currency swap agreement worth 35bn yuan ($5.5bn) in January in a bid to boost two-way trade and investment.

According to the data released by Chinese customs, trade between China and the UAE grew to $32bn in value, up 38%, during the first 11 months of 2011.

Emirates NBD, Dubai’s leading bank, sold the region’s first offshore Chinese renminbi-denominated bond in March.

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