Market News

By Duncan Miriri

NAIROBI, June 18 (Reuters) — Rapid growth in trade between China and Africa, combined with Beijing's decision to remove tariffs on imports from most African countries, is expected to accelerate the use of the Chinese yuan across the continent, supporting China's broader efforts to create alternatives to Western-dominated financial systems.

According to Chinese customs data, trade between China and Africa increased by nearly 18% last year. Analysts expect the removal of tariffs on imports from 53 African countries in May to further boost trade volumes and increase the use of yuan-denominated transactions.

Research by the International Monetary Fund (IMF) has found that countries with greater trade exposure to China tend to increase their use of the yuan. China reinforced this strategy on Wednesday by announcing additional measures aimed at promoting the global use of its currency.

Growing Demand for Yuan Settlements

Chinese ports are receiving increasing volumes of African exports, including Nigerian cattle bone pellets, Kenyan avocado oil and South African apples, following the tariff reductions.

As trade flows expand, demand is also growing for currency settlements between the yuan and African currencies.

Although comprehensive data on yuan usage in Africa remain limited, bankers say rising trade activity, new payment platforms and efforts by some countries to diversify debt financing are all contributing to increased adoption of the Chinese currency.

"Yuan transactions are growing," said Birju Sanghrajka, Chief Executive Officer of Standard Chartered Kenya.

While he does not expect the yuan to replace the U.S. dollar anytime soon, he views the Chinese currency as playing a complementary role.

"We see it as complementary," he said.

New Payment Infrastructure Expands Reach

In November, Standard Bank of South Africa became the first African commercial bank to connect directly to China's Cross-Border Interbank Payment System (CIPS), Beijing's international payments network.

The bank processed approximately $500 million in transactions during its first four months of participation.

"The transactions we have seen have been primarily driven by import and export activities between China and Africa," said Ives Yang, Head of Sales for Transactional Banking at Standard Bank Corporate and Investment Banking.

"We are working on bringing CIPS to more countries," he added.

China Seeks to Support African Exports

Chinese officials say the tariff removals are intended to strengthen trade ties and support African exporters.

"Against a backdrop where unilateralism and protectionism are posing difficulties and challenges for African nations, China is leveraging the advantages of its vast market," said He Yadong, spokesperson for China's Ministry of Commerce.

The move comes as Beijing seeks to deepen its economic engagement with Africa while promoting wider international acceptance of the yuan.

Trade Growth Driving Currency Shift

Financial institutions say the growing use of the yuan is largely a reflection of expanding commercial ties rather than an attempt to directly challenge the dominance of the U.S. dollar.

Standard Chartered Kenya has already begun issuing yuan-denominated letters of credit, enabling clients to reduce costs associated with converting currencies through the dollar.

Meanwhile, China and several other countries, including Russia, continue to develop payment systems that reduce reliance on the greenback.

These efforts have drawn criticism from U.S. President Donald Trump, who has warned against moves to diminish the role of the dollar in global trade and finance.

"Part of the issues we are seeing around the world now is how to reduce the dominance of the dollar," said Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise in Nigeria.

"China is actively promoting yuan settlement," he added.

Outlook

As trade between China and Africa continues to expand, the use of the yuan is expected to increase gradually across the continent. While the U.S. dollar remains the dominant currency in international trade and finance, growing trade links, lower transaction costs and expanding payment infrastructure are likely to strengthen the yuan's role in African markets over time.

Reporting by Duncan Miriri; Editing by Reuters.