The Renminbi's Expanding Role in ASEAN: Beyond Trade Settlements

The adoption of the renminbi (RMB) in Southeast Asia is evolving beyond mere trade settlements, as firms increasingly assess its value for financing and capital markets. According to Karen Ng, head of China opening and renminbi internationalisation at Standard Chartered, this shift reflects a growing commercial rationale rather than just policy-driven motives.

Historically, the use of the renminbi was primarily concentrated among Chinese corporates and within China-linked supply chains. However, as businesses look to reduce foreign-exchange conversion costs and better align their trade, financing, and cash flows, the currency is being integrated into treasury strategies, Ng noted. This transition has become more pronounced over the past two to three years.

One notable example is Singapore Airlines, which issued a 1.5 billion yuan (approximately US$223.5 million) five-year “dim sum” bond in June. This issuance not only broadened the airline's investor base but also highlighted the growing demand for high-quality non-Chinese issuers in the offshore renminbi market.

“Many issuers increasingly view renminbi capital markets as a strategic funding channel that complements their existing US dollar and Singapore dollar programmes by expanding investor diversification and enhancing long-term funding flexibility.”Karen Ng, Standard Chartered

Current adoption of the renminbi remains strongest in sectors with significant China supply chain integration, such as manufacturing, electronics, and natural resources. In industries like metals, mining, and energy, multinational corporations are increasingly discussing the expansion of renminbi settlements with their Chinese customers. Ng emphasized that while adoption is gradual, it indicates a rising interest among corporates in matching renminbi revenues with renminbi financing.

Despite China accounting for nearly 20% of global trade, the renminbi only represented 3.1% of global payments as of July 2023, according to SWIFT data. The currency remains the fifth-most-used in worldwide payments, underscoring a significant gap between China's economic weight and the role of its currency in global finance.

“While adoption remains gradual, it reflects growing corporate interest in matching renminbi revenues with renminbi financing and treasury management.”Karen Ng, Standard Chartered

Challenges for corporates in adopting the renminbi include ensuring they have natural renminbi cash flows. Companies with both renminbi revenues and expenditures find the business case straightforward. However, if revenues are denominated in US dollars while financing is in renminbi, hedging costs may diminish some funding advantages. Ng pointed out that operational readiness, including payment infrastructure and internal treasury policies, also plays a critical role in adoption.

Across Southeast Asia, the state of renminbi adoption varies significantly. Singapore serves as a regional treasury hub that facilitates renminbi flows, while Malaysia, with its deep manufacturing ties to China, is seeing increased renminbi usage in its electronics and machinery sectors. In Thailand, established automotive and electronics sectors are likely to enhance renminbi usage due to growing Chinese investments. Indonesia's opportunities primarily stem from its commodity exports and Chinese investments in sectors like nickel processing and electric vehicle supply chains.

Ng predicts that the next phase of renminbi internationalisation will not be driven by a singular product but rather by industry ecosystems. This approach emphasizes supporting a comprehensive renminbi value chain that includes trade settlement, treasury management, and capital markets.