Page 146 - RusRPTAug24

in the use of the yuan is mainly due to the flow of foreign investments into mainland China's stock and bond markets. These are always done in yuan. The share of the yuan in China's foreign trade is smaller, although growing. Outside of China, the use of the yuan is still very limited and central banks have reduced their yuan reserves in recent months.
According to statistics from the Central Bank of China, 14,600 billion of balance of payments payments were made in yuan in the first quarter of the year. Trade in goods accounted for about a fifth of this, trade in services and other current account items about 5%, and direct investments just under 15%. By far the majority (well over 60%) of cross-border payments in yuan are related to portfolio investments and other financial balance items.
The use of yuan in China's own foreign trade has also increased. In the current year, 28% of the country's merchandise trade has been in yuan. The share is already approaching the peak year of 2015, after which, as a result of currency market uncertainty, the use of the yuan decreased clearly, and in 2021 its share was 15%. Russia's war of aggression in Ukraine and, as a result, the sanctions imposed on Russia by Western countries have already increased the use of the yuan in trade between Russia and China. In March, the Russian authorities said that 92% of trade between the two countries is done in yuan or roubles. Admittedly, the share of the yuan is significantly higher. In addition to this, many developing economies have publicly announced in recent years that they will start accepting yuan payments in their trade with China. These include Brazil, Argentina, Iraq and Pakistan. Based on press reports, Saudi Arabia is also considering starting oil trade with China in yuan. Outside of China, some countries have also been reported to have switched to using the yuan in their payments with Russia as a result of Western sanctions.
In international payments mediated by SWIFT, the yuan became the fourth most used currency at the end of last year, after the yen. In May, 4.5% of international payments transmitted by SWIFT were made in yuan. Surprisingly, the yuan's share is smaller (3.1%) if intra-euro area payments are excluded. In this case, the dollar's share is 59.4% and the euro's 13.1%. Not all international payment traffic goes through SWIFT. According to the organization's own estimate, it handles about 80% of international payment traffic. In principle, yuan payments can be made completely outside of SWIFT using China's own CIPS brokerage system for international payments. However, only a few foreign banks are still able to transmit payment traffic-related messages directly in CIPS, in which case they are still transmitted via SWIFT. According to estimates from a couple of years ago, in about 80 percent of payments going through CIPS, messages were still transmitted through SWIFT. Capital flows to China have increased especially through the cooperation programs of the stock and bond markets (Stock and Bond Connect) and when mainland Chinese yuan-denominated assets have been included in international indexes. At the end of May, foreign investors held 4,220 billion yuan worth of mainland Chinese bonds, up 32%
146 RUSSIA Country Report August 2024 www.intellinews.com