A New Driver of China's De-Dollarization

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Chinese banks have begun to provide substantial amounts of renminbi-denominated trade financing in the last 1-2 years. The current scale is not unusual per se. What is notable is that the financing now seems to be heavily renminbi-denominated. Chinese trade credit added up to around $150bn during 2017-2021, and only 17% was in RMB. However, since 2022, the composition has changed, and renminbi has grown so quickly that it now makes up 72% of the cumulative $250bn extended since 2017. In other words, the Dollar share of Chinese trade credit is dropping sharply. In fact, the provision of USD trade credit may be negative.This note is based on excerpts from a report sent to clients of Exante Data.IntroductionLast year, the share of global trade financing denominated in renminbi began to correlate closely with Chinese BoP-basis trade finance credits. What’s more, Chinese trade credit flows have corresponded nearly one-for-one with Chinese banks’ external renminbi loans since 2024. Authorities in both Hong Kong and mainland China have also provided support for CNH trade financing, though announced policies might not have been the biggest driver of the expansion (behind-the-scenes support from mainland authorities might have mattered more). Russia moving away from USD usage has likely also played a role, particularly in 2022, though Russia alone is too small to account for the whole phenomenon.Taken together, we conclude that a substantial portion (perhaps nearly all since 2024) of new Chinese trade credit loans appears to be denominated in CNH, though a large share of the stock o…