February 04
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Chinese entrepreneur Wang Min is delighted with Russia's switch to the yuan. His LED lighting company can conclude contracts with Russian clients in yuan rather than dollars or euros. He says it is a "win-win" option.

Wang's plans have changed due to the conflict in Ukraine and subsequent Western sanctions against Moscow, which have denied Russian banks and many Russian companies access to payment systems in dollars and euros. His contract manufacturing business in Russia has been small in the past, but he is now preparing to invest in warehousing facilities.

"We hope that next year sales in Russia can account for 10-15% of our total sales," said the businessman from China's southern coastal province of Guangdong, whose annual revenue of about $20 million mainly comes from Africa and South America.

Wang is keen to capitalize on the rapid "yuanisation" of the Russian economy this year. He sees a win-win situation in which Chinese exporters reduce their currency risks and payment becomes more convenient for Russian buyers.

Russia's eastward financial shift could stimulate cross-border trade, become a growing economic counterweight to the dollar and limit Western efforts to pressure Moscow economically.

Total transactions in the yuan-ruble pair on the Moscow Exchange rose to an average of almost 9 billion yuan ($1.25 billion) a day last month, according to exchange data analyzed by Reuters. Previously, they rarely exceeded 1 billion yuan in an entire week.

"What happened was that it became suddenly very risky and expensive to keep traditional currencies - dollar, euro, British pounds," said Andrei Akopian, managing director of Moscow-based investment firm Caderus Capital, citing the potential danger of a bank that keeps foreign currency deposits being sanctioned.

"Everybody was motivated and even pushed towards the rouble or other currencies including, and first of all, the renminbi."

In October, the yuan and ruble traded at 185 billion yuan, more than 80 times the level in February.

The surge in interest led to the yuan's share of the foreign exchange market jumping to 40-45% from less than 1% at the beginning of the year, said Dmitry Piskulov, head of international projects at the Moscow Exchange's foreign exchange market department.

By comparison, the dollar/ruble pair, which accounted for more than 80% of trading volumes on the Russian market in January, had fallen to about 40% as of October, according to the exchange and the Central Bank.

International money flows reflect a similar trend.

Until April, Russia wasn't even in the top 15 countries using yuan outside mainland China in terms of incoming and outgoing flows, according to the global financial networking system SWIFT. It has since moved up to No. 4, trailing only Hong Kong.

However, to put this in a global context, the dollar and euro are still the dominant currencies, accounting for more than 42% and 35% of flows respectively as of September of this year. The yuan rose to nearly 2.5% from less than 2% two years earlier.

Wang's business optimism is shared by Shen Muhui, who heads a trade group of small exporters to Russia in neighboring Fujian province. He said more and more Russian buyers are opening yuan accounts and transacting directly in the Chinese currency, which he said is a big advantage.

"The Russia-Ukraine conflict has brought opportunities for Chinese businessman," said Shen, adding that his association had received many inquiries from Chinese companies interested in doing business in Russia.

Reuters estimates that seven Russian corporate giants, including Rusal, Rosneft and Polyus, have raised a total of 42 billion yuan in bonds in the Russian market, a list that could grow as Sberbank and oil company Gazpromneft say they are also considering yuan debt.

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