Weekly commentary

1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
July 20, 2014
The rise of the Chinese Renminbi is an opportunity for Qatar
China is opening up to the world and is
promoting the wider global use of its currency,
the Renminbi (RMB). This could present
opportunities for other countries, including
Qatar, to benefit.
China is already the largest exporting nation
and the liberalization of the exchange rate,
interest rates and the capital account have
begun. Restrictions on the exchange rate have
gradually been eased. In March 2014, the
trading band was widened for the third time
since 2007, from 1% to 2%, increasing the
amount the RMB is permitted to deviate from
the level set daily by the Chinese central bank,
the People’s Bank of China (PBC). The
authorities have stated the objective to
gradually move towards a fully floating
exchange rate within 2-3 years as part of
reforms to liberalize the capital account.
Currently, restrictions on the capital account
limit investment inflows to quotas on portfolio
investment for permitted foreign institutional
investors. Investment outflows are tightly
controlled with the main exception that
transfers between the Shanghai and Hong
Kong stock markets have been permitted since
April 2014.
As part of the gradual liberalization of the
capital account and the exchange rate, it is
official policy to promote the greater
international use of the RMB for global trade
finance, investment, foreign exchange
transactions and payments. As a result the rise
of the RMB onto the global stage is already
well underway. Its share of global trade
finance has risen swiftly from 2% in January
2012 to 8% currently, overtaking the Yen and
the Euro to become the second most-widely
used currency for trade finance after the US
dollar (which accounts for 80%). Trade
settlement denominated in RMB has grown by
over seven times in two years, from around
USD100bn in 2011 to over USD700bn in 2013.
Average daily RMB trading turnover has risen
from USD34bn in 2010 to USD120bn in 2013,
making it the ninth most traded currency
globally. In terms of total global payments, the
value of RMB transactions have more than
doubled over the last year. Furthermore, the
internationalization of the RMB has provided
the basis for deepening offshore RMB capital
markets. Offshore bond issuance in RMB (Dim
Sum Bonds) has risen rapidly. It started in
2007 and during 2013 issuance reached
USD54.2bn. In the first quarter of 2014 alone
issuance was over USD30bn. Almost all of the
issuance is corporate.
The authorities are actively supporting the
internationalization of the RMB. They have
signed USD400bn of swap agreements with
over 30 central banks. The largest agreements
are with Hong Kong, Korea, the Euro Area,
Singapore and the UK. The aim is to improve
liquidity in offshore RMB funding markets,
supporting trade finance and deepening capital
markets denominated in the currency.
A number of cities are seeking to benefit from
the internationalization of the RMB by
establishing themselves as financial hubs for
RMB transactions. There is a large opportunity
for the financial sector to capture income, fees
and commissions from growing offshore RMB-
denominated business through financing
trade, foreign exchange transactions, issuing
debt, taking deposits and issuing loans.
The Chinese authorities have supported the
establishment of offshore centers for RMB
transactions. Five offshore jurisdictions now
have a clearing bank with direct links to the

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
July 20, 2014
PBC and onshore Chinese interbank markets:
Hong Kong (since 2003), Macau (2004),
Taiwan (2012), Singapore (2013), London
(2014) and Frankfurt (2014). The PBC
announced in June that it would also be
designating clearing banks in Paris and
Luxembourg. The clearing banks typically
have responsibility for settling RMB
transactions and acting as an intermediary
between foreign banks and the PBC.
Rise of the RMB and Qatar-China Trade
Sources: Bloomberg, Swift and QNB Group analysis
For Qatar, an agreement between the Qatar
Central Bank (QCB) and PBC was renewed in
April 2014, which permits the QCB access to
onshore Chinese interbank markets to
purchase bonds for Qatar’s foreign exchange
reserves.
Qatar can benefit from the internationalization
of the RMB by leveraging links that already
exist with China. Qatar’s LNG exports to China
rose by 35.5% in 2013 to 6.8m tons, accounting
for 8.7% of total Qatari LNG exports. China is
in need of LNG to combat high pollution from
the coal-intensive power sector. LNG exports
to China are, therefore, likely to continue
surging. China is also the largest source of
imports into Qatar.
Contacts
Joannes Mongardini
Head of Economics
Tel. (+974) 4453-4412
Rory Fyfe
Senior Economist
Tel. (+974) 4453-4643
Ehsan Khoman
Economist
Tel. (+974) 4453-4423
Hamda Al-Thani
Economist
Tel. (+974) 4453-4646
Ziad Daoud
Economist
Tel. (+974) 4453-4642
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400
500
600
700
800
0
2
4
6
8
2012 2013
CNY cross-border trade settlement
CNY rank as world trade financecurrency
Qatar LNG Exports to China
Qatar Imports fromChina
USD755bn
4th
2nd
USD467bn
6.8m t/y
5.0m t/y
USD1.8bnUSD1.3bn