Japanese MNCs in China Are Increasing the Use of the Yuan in Intra-firm Trade with Japan
The internationalization of Chinese yuan is fully underway with rising use in trade, settlement, and financial transactions. To what extent do Japanese multinational corporations (MNCs) in China, which have numerous subsidiaries and extensive production chains there, use the yuan in their transactions? The latest RIETI (METI’s Research Institute) survey on the activities of Japanese MNCs in China tells us that, at present, Japanese MNCs mainly use the yuan for their local procurement contracts and local sales. It is worth noting, though, that the share of yuan invoicing for their imports of intermediate inputs from Japanese head offices, group companies, and trading companies and the share of yuan invoicing in exports of subsidiaries in China to Japanese head offices is surging. It is incontrovertible, then, that yuan transactions are increasing in intra-firm trade. Still, according to the survey, Japanese subsidiaries in China mainly use the US dollar and the yen in trade with the other countries because the yuan’s high volatility makes it risky to use the yuan for such transactions. Moreover, China’s strict controls on international use of the onshore yuan, while it simultaneously facilitates the yuan’s internationalization and develops offshore yuan markets, prevent Japanese MNCs from using the yuan even as offshore yuan markets grow rapidly. The survey also tells us that for their yuan transactions, Japanese MNCs in Asia use the yuan in China’s foreign exchange market and Hong Kong market and rarely use the offshore yuan-yen market in Tokyo since they are reluctant to use offshore yuan for their yuan transactions and instead mainly use onshore yuan. Regardless, in light of Japanese MNCs’ increasing use of the yuan for intra firm trade, their yuan transactions will continue to grow if China further loosens capital controls and restrictions and makes it easier for them to use the yuan.