COVER STORY • White Paper on International Economy & Trade 2016 • 3 nternationalization of the Yuan: the Case of Japanese Overseas Subsidiaries in Asia IBy Junko Shimizu Author Junko Shimizu
Introduction due to capital controls and regulations, the Chinese government has promoted the offshore market where the yuan can be used outside the mainland. The use of the Chinese yuan is said to have been increasing in recent years Offshore yuan markets are developing rapidly around the world, with official for trade invoicing, reflecting the rapid growth and development of the Chinese clearing banks established in 20 countries across Asia, Europe, the Middle economy. The internationalization of the yuan can be defined as the greater use East, and North and South America, as of July 2016. Recently, the offshore of the currency in international transactions including cross-border trade and yuan is actively used for cross-border trade, finance and direct investment. financial/capital transactions. Various policy reforms to increase such cross- In line with continuous efforts to internationalize the yuan, its role has border transactions have been implemented by the Chinese government. expanded in global foreign exchange trading. According to a Bank of Yuan-related deposits, bonds, and derivatives in offshore markets have also International Settlements survey, the yuan was the ninth most actively traded been expanding. Since China plays an important role as a regional and global currency in 2013, with a share of 2.2% in global foreign exchange volumes. manufacturing hub and Japanese overseas subsidiaries actively operate in Compared with other Asian currencies, its turnover has soared especially since China, it is necessary to investigate to what extent Japanese overseas firms China moved to a managed float regime in July 2005. The yuan’s daily average use yuan in their trade transactions. trading turnover was the smallest among seven Asian currencies in 2004, but In response to the rapid movements in the yuan’s internationalization, this had become $44 billion in 2013 — the largest among the currencies (Chart 1). article makes the following three arguments. First, the Chinese government According to the Society of Worldwide Interbank Financial has been pursuing a unique approach to the internationalization of its Telecommunication (SWIFT) data, the yuan was ranked in 10th position with a currency, learning from Japan’s failure to internationalize the yen in the 1980s. share of 0.87% in June 2013, while it had a share of 1.72% in global payments Second, although the yuan is extensively used for local sales and procurement by value in June 2016. For Asia-Pacific intra-regional payments with China and in China, Japanese overseas subsidiaries in China mainly use the US dollar Hong Kong, the yuan is second only to the yen. For cross-border payments and, to a lesser extent, the yen in trade with other countries. Japanese done with China and Hong Kong, the yuan is the second currency, with a share overseas subsidiaries in Asian countries also are still reluctant to use the of 12.7%, while the US dollar is still the primary currency with a weight of offshore yuan for their cross-border trade settlements. Third, Japanese 63.6%. Thus, the SWIFT data indicates that the yuan continues to progress in multinational corporations (MNCs) in China have increased the use of the yuan various financial transaction areas such as payments, bank adoption and in intra-firm trade with Japan. Yuan transactions will continue to grow if it offshore clearing center growth. becomes easier for them to use the currency in intra-firm trade by further removing capital controls and restrictions. Difference in Internationalization Between Yen & Yuan
Internationalization of the Yuan As mentioned, the internationalization of the yuan began with trade-related
According to Barry Eichengreen and Masahiro Kawai (“Issues for Renminbi CHART 1 Internationalization: An Overview”, ADBI Working Paper Series No. 454, OTC foreign exchange turnover 2014), the internationalization of the yuan started in trade-related transactions. (1998-2013) Since 2009, China has started to sign bilateral currency swap agreements with (Daily average, billion US$) various countries to provide yuan liquidity for trade and direct investment. At 50 the end of May 2015, China signed bilateral yuan-denominated swap 45 arrangements with 32 foreign central banks, which enabled Japanese MNCs in China Indonesia Malaysia 40 Philippines Thailand both China and its partner countries to settle cross-border trade and direct investment in the yuan. In July 2009, Beijing launched a pilot scheme that 35 allowed the use of the yuan in trade settlements with ASEAN countries, Hong 30 Kong, Macau, and five mainland Chinese cities. Since then, authorization for 25 yuan-denominated trade has been extended nationwide. At the same time, 20 China has also promoted direct yuan trading with non-US dollar currencies, 15 which eliminated the need for foreign counterparts to conduct indirect 10 transactions by buying and selling dollars. Direct yuan trading started with 5 Malaysia (August 2010), the Russian Federation (November 2010), Japan 0 (June 2012) and Australia (April 2013). In June 2014, the Common Electronic 1998 2001 2004 2007 2010 2013 Fund Transfer Switch (CEFTS) announced to the launch of direct trading Note: OTC (over-the-counter) transactions include spot transactions, outright forwards, between the yuan and the British pound. As of the end of July 2016, 13 foreign foreign exchange swaps, currency swaps, options and other products, which are adjusted for local inter-dealer double-counting (i.e. “net-gross” basis). Data may differ currencies can be directly traded with the yuan in China’s inter-bank foreign slightly from national survey data owing to differences in aggregation procedures and exchange market. rounding. Source: Bank for International Settlements (BIS), Triennial Central Bank Survey: Global In addition to the above policies, an offshore market plays an important role Foreign Exchange Market Turnover in 2013, Monetary and Economic Department, in expanding yuan transactions. As the currency is still not yet fully convertible February 2014
Japan SPOTLIGHT • September / October 2016 13 COVER STORY 3 transactions. In the first step of this internationalization, Beijing focused on Furthermore, inertia and the institutional constraints in choosing the currency promoting the use of the yuan for trade settlement without its full for international trade and capital transactions are often pointed out as convertibility. In this unique approach, bilateral swap arrangements played an possible reasons for the limited use of the yen. important role. As the capital account is not fully liberalized in China, and As explained above, the Chinese government has been pursuing a unique foreign countries cannot freely use the yuan in international markets, one approach to the yuan’s internationalization, learning from Japan’s failure to alternative approach toward increasing the international flow of the yuan is to internationalize the yen. Indeed, the use of the Chinese currency has been sign bilateral swap agreements. In addition, the Chinese government promoted growing, but Japanese firms are still reluctant to use the offshore yuan for the utilization of the offshore yuan for cross-border transactions including their cross-border trade settlements. Japan made an effort to promote the trade settlements, deposits and direct investment. In order to make these international use of the yen by removing capital controls and restrictions on transactions more convenient, they set up official yuan clearing banks in 15 yen transactions. In contrast, China has facilitated the yuan’s countries around the world. internationalization and developed the offshore yuan markets while keeping Let us briefly discuss the differences in the internationalization process strict capital controls on the international use of the onshore yuan. As long as between the yen and the yuan. The yen became a fully convertible currency capital controls exist, Japanese firms do not assume that the yuan is an through the following deregulations: the establishment of free yen accounts for international currency. Thus, this unique approach to the its internationalization nonresidents in 1960, the amendment of the Foreign Exchange and Foreign in fact prevents Japanese firms from using the yuan despite the rapid growth Trade Control Act in 1980, the abolition of the real demand principle and the of the offshore yuan markets. US-Japan Yen Dollar Committee in 1984, and the amendment of the Foreign Exchange and Foreign Trade Act in 1998. Yuan Usage by Japanese Overseas Subsidiaries In comparison with the yuan, there are three marked differences in the yen’s internationalization. First, the Japanese government started to deregulate the Large-scale questionnaire surveys of Japanese overseas manufacturing foreign exchange and capital controls to make the yen fully convertible. subsidiaries were conducted by the Research Institute of Economy, Trade and Second, as suggested by Eichengreen and Kawai, Japan was reluctant to Industry (RIETI) in August 2010 and November 2014. The questionnaires were internationalize the yen for trade settlement in the 1980s and the first half of sent to 16,020 and 18,932 subsidiaries in August 2010 and November 2014, the 1990s when it increased exports to the world market, while the Chinese with 1,479 and 1,640 subsidiaries responding in 2010 and 2014, respectively. government has aggressively and rapidly promoted the yuan’s These subsidiaries were chosen from Toyo Keizai’s Overseas Japanese internationalization since becoming the largest exporting country. Companies database. Using these survey results, we investigated to what When the Foreign Exchange and Foreign Trade Act was amended to extent the use of the yuan has been growing in the trade of Japanese overseas deregulate domestic and foreign capital transactions and foreign exchange subsidiaries along the production chain. operations, 14 years had already passed since the abolition of the real demand principle. Although this amendment liberalized settlements in foreign What Impedes Yuan Transactions? currencies, it was too late to internationalize the yen for trade invoicing, Table 1 presents the 2010 and 2014 survey results obtained from Japanese because the Japanese economy had suffered from prolonged stagnation in the 1990s. Since the second half of the 1990s, TABLE 1 Japan has tried to promote the use of the yen as an Problems in using respective currencies for international currency, but the internationalization process has made little progress so far. trade invoicing Prob em Third, the Japanese government allowed a large rrenc 1 2 3 4 5 6 rrenc ore n e c an e ore n e c an e ap ta contro / rm a e H tran act on H ore n Ot er appreciation of the yen since the Plaza Accord in 1985. ame o rm e contro / contro / re tr ct on c t n co t n o e e c an e c rrenc or tra e re at on pre ent re at on pre ent pre ent n or t c rrenc o at t However, it did not promote the use of the yen for trade tran act on non re ent � operat ona n e tment an tra e tran act on o t e e n n ra n n e n settlements at that time. On the other hand, the yuan’s c rrenc marr an nett n t at c rrenc e t o 2010 S r e internalization started after the Chinese government changed 1 224 14 31 40 4 60 3 S o ar its currency regime from the US dollar peg to a managed 6 0 5 3 4 3 5 6 11 5 2 5 5 4 4 236 6 2 210 11 ro floating system. With the strong expectation of yuan 34 0 4 3 0 2 5 11 0 4 20 654 2 21 4 5 3 25 appreciation, there should be a strong incentive to hold the Japane e en 64 6 1 1 4 4 3 2 12 0 3 yuan. As Eichengreen and Kawai indicated, the yuan’s 14 6 32 2 20 2 ne e an internationalization was supported by speculative motives 10 5 51 0 42 1 36 10 5 26 3 2 6 3 1 2 1 2 14 2 Hon on o ar rather than the convenience of the yuan itself for trade 5 21 11 1 5 6 11 1 11 1 143 45 2 4 36 2 invoicing and settlement. S n apore o ar The use of the yen in trade transactions gradually increased 10 0 31 5 4 4 1 0 0 4 4 13 4 3 6 5 3 5 T a ba t its share until the 1980s, but then stopped rising and declined 6 35 6 1 12 2 10 2 6 10 2 in the 1990s. There are various arguments and explanations for e t o 2014 S r e 1 266 311 22 1 1 53 24 13 S o ar the limited use of the yen. First, the choice of invoice currency 3 46 6 1 6 2 6 2 1 3 5 2 4 5 52 5 3 4 11 0 3 in international trade is usually affected by various factors such ro 34 13 0 5 3 5 0 13 5 3 as market competitiveness (bargaining power) and trade 24 3 15 14 15 51 35 Japane e en structure. Japan used to import large amounts of raw materials 60 4 40 4 0 3 4 0 13 5 4 2 1 14 41 12 14 16 10 26 1 ne e an that are traditionally invoiced in dollars in international markets. 6 2 2 3 34 1 3 0 24 4 63 4 2 4 63 4 0 0 0 1 3 0 Even in trade between Asian countries, the yen is not Hon on o ar 4 1 6 3 0 0 0 0 0 0 25 0 5 0 0 0 extensively used. First, the yen is not convenient to use 106 0 1 0 2 1 S n apore o ar because foreign exchange markets between the yen and Asian 6 5 0 0 11 1 0 0 22 2 11 1 12 23 0 1 2 3 1 1 T a ba t currencies remain underdeveloped. Second, the exchange 3 1 1 0 0 4 3 13 0 3 4 3 rates between the yen and Asian currencies are unstable Note: The total number of respondents (firms) was 1,424. Multiple answers were allowed. Figures in because most Asian currencies are linked more to the dollar. A parenthesis of column (B) denote percentage figures based on the ratio of (B) to the total respondents (1,424). Figures in parenthesis of column (C) denote percentage figures based on the ratio of (C) to (B). third factor is the declining credibility of the yen, reflecting the Figures in square brackets denote percentage figures based on the ratio of (D) to (C). long stagnation of the Japanese economy since the 1990s. Source: RIETI Questionnaire Survey 2010 and 2014
14 Japan SPOTLIGHT • September / October 2016 TABLE 2 TABLE 3 Do you have any plan to increase Do you have any yuan transactions? yuan transactions in the future? (2014 survey)
2010 2014 mber o I e c an mber o mber o e o e o Ot er e o Ot er re pon ent H re pon ent re pon ent On ore O ore 55 160 5 2 23 623 501 23 643 125 102 1 51 a a 100 0 21 2 5 3 0 100 0 15 0 4 3 100 0 1 4 5 0 15 0 0 6 43 0 43 0 44 0 43 1 43 1 1 0 42 Ocean a Ocean a 100 0 0 0 100 0 0 0 100 0 0 0 2 3 100 0 2 3 100 0 0 0 2 3 6 262 5 204 3 1 6 5 206 4 3 1 ort mer ca ort mer ca 100 0 2 2 6 0 1 100 0 1 5 6 1 2 5 100 0 3 4 5 1 42 6 6 20 0 20 0 20 0 0 0 20 So t mer ca So t mer ca 100 0 0 0 100 0 0 0 100 0 0 0 0 0 0 0 100 0 rope 10 3 104 2 121 112 2 rope 123 5 4 0 11 ro area 100 0 2 5 4 1 100 0 5 2 6 1 ro area 100 0 4 1 100 0 0 0 5 rope 0 0 0 0 0 1 66 3 rope 0 2 2 0 6 non ro area 100 0 0 0 100 0 0 0 100 0 1 4 4 3 4 3 non ro area 100 0 2 100 0 0 0 1 1 250 16 1 051 30 1 0 2 110 3 34 1 105 140 113 21 65 100 0 13 5 4 1 2 4 100 0 10 2 6 3 1 100 0 12 4 3 15 3 Note: Figures in parenthesis denote percentage figures based on the ratio to total Note: Figures in parenthesis denote percentage figures based on the ratio to total number respondents of respective regions. of respondents. Figures in square brackets denote the ratio to number of respondents Source: RIETI Questionnaire Survey 2010 and 2014 that answered “Yes”. It must be noted that all respondents that answered “Yes” did not answer the question: “If ‘Yes’, which yuan?” Source: RIETI Questionnaire Survey 2014 overseas subsidiaries concerning the difficulties in using respective currencies Any Plans to Increase the Use of the Yuan and Other Asian Currencies? as invoice currency. First, the second column shows that the US dollar was the Table 2 presents the survey results of the question: “Do you have any plans most used as an invoice currency, with 86% and 83.9% of responding firms to increase yuan transactions in the future?” Basically, few responding firms using it in the 2010 and 2014 surveys, respectively, while the yen was the answered “Yes” in both the 2010 and 2014 surveys, except for subsidiaries second most used currency. The yuan was the fourth most used currency, located in Asia. But in the 2010 survey, only 21.2% of respondents in Asia with about 10% of responding firms using it for trade invoicing. The rankings answered “Yes”. The share of respondents that answered “Yes” declines from and shares of respective currencies do not change much between the 2010 21.2% to 15.9% in the 2014 survey. Interestingly, the share of respondents and 2014 surveys. that answered “Yes” in Europe rose from 2.8% to 5.8% in the 2014 survey. Second, what are the problems when using respective currencies for trade This might be related to the expanding of the yuan offshore market in London invoicing? “(D5) high foreign exchange rate volatility” accounts for the largest recently. When we look at a breakdown of the results by Asian country share in most currencies in both the 2010 and 2014 surveys. For yuan according to the 2014 survey, more than half of subsidiaries located in China invoicing, subsidiaries had difficulty in using the currency due to “(D1) foreign and one fourth of subsidiaries located in Hong Kong plan to increase yuan exchange controls/regulations” in the 2010 survey. But in the 2014 survey, transactions in the future. In contrast, only a few subsidiaries located in other 63.4% of subsidiaries had difficulty in using the yuan due to “(D5) high foreign Asian countries consider further use of yuan for their international exchange rate volatility”. transactions. Third, Japanese subsidiaries had less difficulty in using the yuan for trade transactions in the 2014 survey than in the 2010 survey. In the third column of Which Yuan Is Used, CNY or CNH? Table 1 (“(C) currency firms have difficulty in using for trade”), the share of the The 2014 survey gained information on the use of onshore yuan (CNY) and yuan declined from 51% to 27.9%. These results are consistent with the offshore yuan (CNH). Table 3 shows that only a few subsidiaries have yuan improvement of the yuan foreign exchange transactions discussed in the transactions in all regions except Asia. In Asia, 19.4% of respondents use the previous section and also with a gradual shift of the yuan’s exchange rate yuan for their transactions, 85% of which use not CNH but CNY. This evidence regime toward a more flexible one. suggests that Japanese subsidiaries mainly use CNY for their operations. For their yuan transactions, Japanese subsidiaries located in CHART 2 Asia use the currency mainly in China’s foreign exchange Do you have any transactions denominated in market and Hong Kong market. Unfortunately, the yuan at the moment? offshore yuan-yen market in Tokyo is rarely used by Japanese subsidiaries. It is because many Japanese 40 firms are reluctant to use CNH for their yuan 35 transactions. e o 30 35 Difference Between Users and Non-users of Yuan 20 Is there any difference between overseas subsidiaries 15 that use the yuan for trade transactions and those who o o rm 10 do not use it at the moment? According to Chart 2, which 5 classifies respondents only in China to the question as to 0 whether subsidiaries currently have any transactions denominated in the yuan, “Manufacturing subsidiaries” oo are more likely to use the yuan as an invoice currency ac ner em ca T oo eta pro ct than “Wholesale trade subsidiaries”. By industry, 20 out T ac ner T em ca Te t e appare Tra n compan of 35 subsidiaries of “Electrical Machinery ectr ca mac ner Ot er man act r n T eta pro ct Tran port e pment Prec on n tr ment T ectr ca mac ner T Tran port e pment Ot er o e a e tra e T Prec on n tr ment T Te t e appare (Manufacturing)” and 19 out of 27 subsidiaries of “Machinery (Manufacturing)” use the yuan as an invoice an act r n o e a e Tra e currency. In addition, nine out of 12 subsidiaries of Source: RIETI Survey 2014 “Trading Company” use it as an invoice currency.
Japan SPOTLIGHT • September / October 2016 15 COVER STORY 3
Invoice Currency Choice in Intra-Firm Trade TABLE 4 Finally, we investigated the data on choice of invoice Invoice currency choice of production subsidiaries currency, focusing on production subsidiaries in Asia in China: local procurements & local sales (all Asian countries), China, and the ASEAN-6 ocal rocure ents ocal Sales countries. ocal rocure ents ( ) ocal Sales ( ) The left-hand side of Table 4 shows that Japanese sia China S - sia China S - 2010 2014 2010 2014 2010 2014 2010 2014 2010 2014 2010 2014 production subsidiaries in Asia procure 78% of their 1 rom oca compan 1 To c tomer intermediate inputs from local companies, where local 1 JP 2 1 2 2 2 1 2 1 3 0 ocal 1 JP 1 4 1 6 0 0 3 1 6 0 6 currencies are mainly chosen as a contract currency. In 2 S 16 2 1 11 5 6 20 25 6 rocure ents 2 S 1 6 21 5 10 4 3 24 2 30 0 China, 86.5% of procurements from local companies 3 ro 0 0 0 0 0 0 0 0 0 0 0 0 3 ro 0 0 0 3 0 0 0 0 0 0 0 0 4 an 23 2 4 4 5 6 5 0 0 0 0 roduction 4 an 21 21 5 4 0 4 0 0 were contracted in yuan in 2014. In ASEAN-6, 70.0% 5 Loca 53 50 1 3 4 1 0 0 Subsidiaries 5 Loca 53 53 6 0 0 2 4 6 6 6 3 of local procurements were contracted in the local 6 Ot er 4 1 1 0 0 0 0 5 1 3 6 Ot er 4 4 1 2 0 1 2 6 1 1 1 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 ocal TOT L 100 0 100 0 100 0 100 0 100 0 100 0 currency. However, in procurements of intermediate 2 rom ro p compan Sales 2 To ro p compan inputs from group companies, China exhibits a 1 JP 2 0 11 6 20 0 12 5 23 1 13 0 1 JP 0 3 3 5 2 5 4 4 remarkable increase in yuan transactions from 26.7% 2 S 42 3 1 53 3 12 5 41 4 2 S 30 1 26 14 3 1 5 34 0 3 1 3 ro 0 0 0 0 0 0 0 0 0 0 0 3 ro 0 4 4 0 0 5 1 1 2 4 in 2010 to 75.0% in 2014. In ASEAN, local currency 4 an 5 6 1 4 26 5 0 0 0 0 0 4 an 1 2 1 65 0 0 0 0 0 transactions accounted for only 34.8% in 2014, 5 Loca 22 4 2 0 0 0 0 0 34 1 34 5 Loca 41 3 35 6 0 0 5 55 3 54 whereas 47.8% of local procurements from group 6 Ot er 0 2 0 0 0 0 1 1 4 3 6 Ot er 2 1 1 1 2 0 0 2 1 0 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 companies were traded in US dollars. 3 rom ot er compan 3 To tr b tor ot er compan As shown on the right-hand side of Table 4, 1 JP 13 5 3 4 1 0 0 13 4 0 0 1 JP 1 3 0 0 0 0 0 0 3 4 0 0 Japanese production subsidiaries in China mainly used 2 S 44 2 4 2 3 50 0 41 0 0 2 S 10 4 35 6 0 0 33 3 24 1 36 3 ro 3 4 0 0 1 0 0 3 0 0 0 3 ro 0 0 2 2 0 0 0 0 0 0 3 3 the yuan for sales to customers in local markets: in 4 an 10 3 54 5 50 0 1 5 0 0 4 an 41 6 1 100 0 66 0 0 0 0 2014, 85.4% of local sales to customers were traded in 5 Loca 24 10 3 0 0 0 0 32 15 0 5 Loca 44 2 44 4 0 0 0 0 6 0 60 0 yuan. In local sales to group companies in China, the 6 Ot er 5 6 3 4 0 0 0 0 5 5 0 6 Ot er 2 6 0 0 0 0 0 0 3 4 0 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 share of yuan transactions declined somewhat, but was Source: RIETI Survey 2010 and 2014 higher than the corresponding share of local currency transactions in other Asian countries. TABLE 5 The left-hand side of Table 5 shows the invoice Invoice currency choice of production subsidiaries currency share in imports of intermediate inputs from in China: imports from & exports to Japan Japan. The share of yuan invoicing exhibits a marked I ports fro Japan ports to Japan increase to around 11% in imports from Japanese I ports fro Japan ( ) ports to Japan ( ) head offices, group companies, and Sogo Shosha sia China S - sia China S - 2010 2014 2010 2014 2010 2014 2010 2014 2010 2014 2010 2014 (large trading companies). The right-hand side of Table 1 rom Japane e ea o ce 1 To Japane e ea o ce 5 also indicates that the share of yuan invoicing in JP 5 54 4 53 0 43 5 5 5 6 I ports fro JP 46 3 31 3 51 30 42 4 25 exports of subsidiaries in China to Japanese head S 3 0 3 45 5 44 3 3 5 Japan S 45 60 4 46 4 53 1 45 5 6 6 an 0 2 3 6 0 11 5 0 0 0 0 an 0 5 5 1 16 0 0 0 0 0 offices rose considerably from 1.8% in 2010 to 16% in Loca 2 2 2 3 0 0 0 0 3 3 0 roduction Loca 6 2 6 0 0 0 0 11 1 4 5 2014. This observation shows that in intra-firm trade Ot er 0 4 0 0 0 0 0 0 4 0 0 Subsidiaries Ot er 0 3 0 0 0 0 0 0 0 5 0 0 between production subsidiaries in China and Japanese TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 2 rom ro p compan ports to 2 To ro p compan head offices, yuan transactions have grown to a certain JP 51 43 36 1 33 3 4 53 6 Japan JP 50 3 1 45 5 41 2 44 3 5 extent. S 46 5 4 5 5 3 51 52 2 42 S 46 0 50 0 54 5 4 1 50 0 50 0 an 0 4 5 2 11 1 0 0 0 0 an 0 0 2 4 0 0 5 0 0 0 0 Loca 0 3 0 2 3 0 0 3 6 Loca 1 6 5 0 0 5 2 6 12 5 Conclusion Ot er 0 0 0 0 0 0 0 0 0 0 0 0 Ot er 1 6 0 0 0 0 0 0 2 6 0 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 3 rom Japane e Sogo Shosha 3 To Japane e Sogo Shosha While the international use of the yuan for trade JP 56 54 5 41 5 61 5 5 5 4 JP 3 64 3 33 3 100 0 0 0 55 6 invoicing has been discussed in recent years, firm-level S 3 40 0 53 26 35 4 S 1 2 6 66 0 0 100 0 33 3 information on yuan transactions especially along an 1 5 2 4 11 5 0 0 0 0 an 0 0 0 0 0 0 0 0 0 0 0 0 Loca 2 2 0 0 0 0 4 4 2 Loca 0 0 1 0 0 0 0 0 0 11 1 production chains has not been investigated. Utilizing Ot er 0 0 0 0 0 0 0 0 0 0 0 0 Ot er 0 0 0 0 0 0 0 0 0 0 0 0 firm-level information obtained by these large-scale TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 questionnaire surveys, this study shows new evidence 4 rom ot er compan 4 To ot er compan JP 53 4 52 0 44 4 0 0 52 5 55 6 JP 42 1 22 2 40 0 0 0 50 0 40 0 of the use of the yuan by Japanese overseas S 32 44 0 33 3 100 0 35 0 44 4 S 42 1 55 6 60 0 100 0 33 3 20 0 subsidiaries operating in China and other Asian an 3 4 0 0 22 2 0 0 0 0 0 0 an 0 0 0 0 0 0 0 0 0 0 0 0 countries along their regional and global production Loca 6 4 0 0 0 0 0 5 0 0 Loca 5 3 0 0 0 0 0 0 3 0 0 Ot er 3 4 0 0 0 0 0 0 5 0 0 0 Ot er 10 5 22 2 0 0 0 0 3 40 0 network. We have found that although the yuan is TOT L 100 0 100 0 100 0 100 0 100 0 100 0 TOT L 100 0 100 0 100 0 100 0 100 0 100 0 largely used for local sales and procurement in China, Source: RIETI Survey 2010 and 2014 Japanese overseas subsidiaries in China mainly use the US dollar and, to a lesser extent, the yen in trade with other countries. capacity for exchange rate risk management, but also on further deregulation However, we also observe the growing use of the yuan in overseas of onshore yuan transactions for Japanese firms. subsidiaries’ international trade along the production chain, especially in intra- firm trade. Production subsidiaries in China exhibit an increase in yuan Junko Shimizu is a professor of the Faculty of Economics at Gakushuin transactions not only for imports of intermediate inputs from Japanese head University. She has previously held positions with Chase Manhattan Bank, the offices and group companies but also for exports of production goods to Industrial Bank of Japan, Bank of America International, and Morgan Stanley. Japanese head offices. At the moment, trading companies in China are playing She received a Ph.D in Commerce from Hitotsubashi University in 2004, and an important role in promoting yuan invoicing for trade transactions. These continues her research in the fields of international finance and exchange rate results suggest that growing yuan trade transactions depend not only on a regimes.
16 Japan SPOTLIGHT • September / October 2016