The Yuan's Global Ambition: China's Cross-Border Financial Strategy and Its Investment Implications
2min read The People’s Bank of China (PBOC) has unveiled a strategic push to elevate the yuan’s role in global commerce, with Deputy Governor Lu Lei emphasizing the need to counteract rising protectionism and weak global growth drivers. The central bank’s plan, announced in early 2024, urges state-owned enterprises (SOEs) to prioritize the use of the yuan in cross-border transactions—a move that could reshape international financial flows and accelerate the currency’s internationalization.
The Strategic Imperative Behind the Plan
The PBOC’s initiative is rooted in two key objectives: reducing reliance on the U.S. dollar and other foreign currencies in trade settlements, and strengthening China’s financial sovereignty. By encouraging SOEs—critical drivers of China’s economy—to transact in yuan, the central bank aims to create a self-reinforcing cycle of demand for the currency. This aligns with broader macro-prudential goals outlined in the 2025 Macro-Prudential Work Conference (though details remain obscured due to restricted access to official documents).
The plan also reflects Beijing’s response to geopolitical shifts, such as U.S. dollar-centric sanctions regimes and trade tensions. As Lu Lei noted, the external environment has grown “increasingly complex,” necessitating proactive measures to insulate China’s economy.
Data-Driven Insights into Yuan Internationalization
To assess the plan’s potential impact, consider the following metrics:
China’s massive trade surpluses—averaging $600 billion annually since 2017—provide ample liquidity for yuan-denominated transactions.
The yuan’s global payment share has risen from 0.8% in 2014 to 2.4% in 2024, though it lags far behind the dollar (40%) and euro (35%).
Annual cross-border yuan settlements have surged from CNY 10 trillion to over CNY 50 trillion, underscoring growing acceptance.
Challenges and Opportunities for Investors
While the plan signals progress, obstacles remain. The yuan’s use in trade invoicing and reserves is still limited by capital controls and market volatility. Moreover, geopolitical risks—such as U.S.-China tensions—could disrupt cross-border financial flows.
For investors, the strategy presents opportunities in three areas:
1. Cross-Border Payment Infrastructure: Firms like Ant Group (0688.HK) and China Construction Bank (0939.HK) are expanding digital yuan platforms.
2. Yuan-Denominated Assets: Bonds and stocks priced in yuan could attract foreign investors seeking diversification.
3. Free Trade Zones: Cities like Shanghai and Shenzhen, which offer relaxed capital rules, may see increased yuan-based trade financing.
Conclusion: A Long-Term Play with Mixed Near-Term Gains
The PBOC’s yuan push is a critical pillar of China’s economic strategy, but success hinges on sustained policy support and market confidence. While the yuan’s global share remains modest, its trajectory is upward. For example, in 2023, over 30% of China’s trade with ASEAN was settled in yuan—a 10% jump from 2020.
However, investors must weigh risks. A weaker yuan, driven by slowing growth or geopolitical friction, could deter adoption. The currency’s 2022 depreciation against the dollar—down 8%—highlighted its volatility.
In the long term, the yuan’s ascent will depend on China’s ability to deepen its financial markets and liberalize capital flows. For now, the PBOC’s plan signals a clear direction—one that merits close attention from global investors.
The yuan’s fluctuation against the dollar since 2010 underscores the currency’s evolving role—and the risks and rewards for those betting on its future.
