Advertisement
Australia
Opinion
SCMP Editorial
SCMP Editorial

Editorial | Record yuan loan to Australian miner makes good sense

The sizeable foreign loan is a landmark in Beijing’s efforts to internationalise the yuan as an alternative to the US dollar

Reading Time:2 minutes
Why you can trust SCMP
A mine worker inspects conveyer belts transporting iron ore at the Fortescue Solomon iron ore mine, in the Sheila Valley, around 400km south of Port Hedland, in the Pilbara region of Western Australia. Photo: Reuters
SCMP Editorial
Barely a month after Australia’s Labor Prime Minister Anthony Albanese visited China to improve relations put on ice by his Liberal predecessor, the Bank of China announced it was leading the country’s largest syndicated, yuan-denominated loan to a foreign firm. Perth-based Fortescue is the world’s fourth-largest iron ore producer and China has long been its best customer, so the loan, worth a record 14.2 billion yuan (US$1.98 billion), makes good sense.
The diplomatic thaw is bearing fruit. But the sizeable foreign loan is also a landmark in Beijing’s efforts to internationalise the yuan as an alternative to the US dollar.

This first offshore yuan-syndicated loan to an Australian company comes at a time of growing doubts about the stability of the US dollar, which has dropped almost 10 per cent this year against a basket of major currencies, amid the erratic trade policies of President Donald Trump. Beijing sees a window of opportunity to accelerate its global push for the yuan.

Advertisement

For Fortescue, it’s a good deal. The Australian dollar has dropped nearly 10 per cent against the US dollar in the past year but less so against the yuan. Moreover, Chinese banks charge around 4.9 per cent interest for a yuan loan longer than five years, but 5.23 per cent if the same loan is made in US dollars. A large syndicated loan like Fortescue’s would enjoy even lower rates.

The yuan internationalisation index, run by Renmin University, rose by 11 per cent last year. The People’s Bank of China, the country’s central bank, recently announced it would expedite yuan use in trade settlement and cross-border financing.
Advertisement

It has pledged to strengthen the offshore market and provide stable liquidity while speeding up the development of the yuan-denominated Cross-border Interbank Payment System (CIPS), Beijing’s alternative to the Society for Worldwide Interbank Financial Telecommunication (Swift) system.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x