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Chinese Tech Giants Lobby for Offshore Yuan Stablecoin to Challenge U.S. Dollar Dominance

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Chinese technology leaders JD.com and Ant Group are pressing the People’s Bank of China (PBOC) to authorize yuan-pegged stablecoins issued in Hong Kong, aiming to boost the international use of the Chinese currency and counter the growing influence of U.S. dollar-linked stablecoins. This push reflects a strategic effort to expand the yuan’s role in global digital finance and cross-border payments amid increasing competition with the U.S.

Stablecoins are cryptocurrencies pegged to stable assets like fiat currencies. Currently, over 99% of stablecoins are linked to the U.S. dollar, and their blockchain-based technology allows fast, low-cost, and borderless transactions, potentially disrupting traditional financial systems. The global stablecoin market is valued at about $247 billion and is expected to grow to $2 trillion by 2028.

Both JD.com and Ant Group plan to launch stablecoins backed by the Hong Kong dollar following the region’s new legislation effective August 1. However, they argue that yuan-based stablecoins issued offshore—particularly in Hong Kong—are urgently needed to promote the yuan’s internationalization. This would mark a significant policy shift in Beijing’s stance on cryptocurrencies, which were banned domestically in 2021.

Industry voices, such as Wang Yongli of Digital China Information Service Group and former Bank of China official, highlight the strategic risks of the yuan falling behind the dollar in cross-border payments. Currently, the yuan’s share of global payments has dropped to 2.89%, far below the dollar’s dominant 48.46%.

The lobbying coincides with Hong Kong and the U.S. racing to establish regulatory frameworks for stablecoins. Chinese exporters increasingly use dollar-pegged stablecoins like Tether (USDT) due to capital controls and currency volatility risks at home, fueling demand for alternative payment tools.

While the PBOC has yet to officially respond, advisors and officials acknowledge the challenges posed by the digital currency surge and have hinted that offshore yuan stablecoins are under consideration. Ant Group is preparing to seek stablecoin licenses in Hong Kong and Singapore, with JD.com planning similar applications globally to facilitate foreign exchange and cross-border payments.

JD.com also points out that pegging stablecoins to the Hong Kong dollar—tied to the U.S. dollar—does little to promote the yuan’s use, thus proposing a yuan stablecoin issuance pilot first in Hong Kong, then expanded to China’s free trade zones, a suggestion reportedly well received by regulators.

Asia-Pacific Markets Mostly Rise as Investors Weigh China Stimulus Measures

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Asia-Pacific markets saw mixed performances on Wednesday, with Hong Kong’s Hang Seng Index extending its gains by 2.2%, driven by investor enthusiasm for China’s newly announced stimulus measures. The Hang Seng rally was supported by strong performances in the energy and basic materials sectors, with the Hang Seng Mainland Properties Index rising 3.6%.

Chinese markets have been reacting positively to the People’s Bank of China’s (PBOC) recent economic support measures. On Tuesday, the Hang Seng Index experienced its best day in seven months, while mainland China’s CSI 300 Index saw its largest one-day gain in over four years. By Wednesday, the CSI 300 continued its upward trend, rising by 1.73%.

The PBOC announced another rate cut, reducing the medium-term lending facility (MLF) rate from 2.3% to 2%. This marked the second rate cut in three months, following a previous reduction from 2.5% to 2.3% in July. In response, the offshore yuan briefly strengthened to 6.995 against the U.S. dollar, breaking the 7.00 level for the first time since May 2023.

Investors are also closely monitoring Australia’s inflation data. The country’s consumer price index rose by 2.7% year-on-year in August, in line with economists’ expectations, and easing from July’s 3.5% increase. Australia’s S&P/ASX 200 Index edged up slightly, recovering from two days of losses.

Elsewhere in the region, Japan’s Nikkei 225 rose 0.32%, while the broader Topix Index gained 0.11%, reversing earlier losses. South Korea’s Kospi was up 0.4%, with the Kosdaq rising 0.43%. South Korea also unveiled its new “Korea Value Up Index,” set to start trading next week. The index will feature 100 companies, with IT and industrial stocks making up over 40%.

In the U.S., markets also had a positive day on Tuesday. The S&P 500 gained 0.25%, closing at a record 5,732.93, while the Dow Jones Industrial Average rose 0.2%, reaching a new high of 42,208.22. The Nasdaq Composite added 0.56%, with Nvidia leading the charge, climbing nearly 4%. This came after a regulatory filing indicated that Nvidia CEO Jensen Huang had concluded his recent stock sales.

Chinese Yuan Reaches 16-Month High Against US Dollar Amid PBOC Stimulus Measures

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China’s yuan surged to its highest level in over 16 months on Wednesday, boosted by a series of stimulus measures introduced by the People’s Bank of China (PBOC) to bolster the slowing economy. The offshore yuan briefly appreciated to 6.9946 per dollar, a level not seen since May 2023. Similarly, the onshore yuan traded at 7.0319 against the greenback, marking its strongest performance since last May.

While the yuan’s rise is seen as a positive outcome of the PBOC’s policies, analysts caution that a stronger currency could hurt China’s export sector. Wei Liang Chang, FX and credit strategist at DBS, warned that policymakers must be careful not to allow the renminbi’s appreciation to weigh on the fragile economy. “Weak growth and low inflation in China should put pressure on the RMB going forward,” noted Edmund Goh, head of China fixed income at abrdn.

Ben Emons, founder of Fed Watch Advisors, added that rapid yuan strengthening could add deflationary pressure to China’s exports, which are already under strain. Unlike the U.S. dollar or Japanese yen, the Chinese yuan operates within a controlled exchange rate system. Onshore yuan trades within a 2% range around the midpoint set by the PBOC, while offshore yuan—traded mainly in Hong Kong, Singapore, and New York—faces fewer restrictions, allowing for greater market influence.

Despite the upward momentum, some experts expect the offshore yuan (USDCNH) to dip below 7.0 in the coming months. Zerlina Zeng, head of Asia Credit Strategy at CreditSights, predicts that China’s pro-growth stance and potential easing from the Federal Reserve could lead to further yuan appreciation.

Tuesday’s announcement by the PBOC included key moves such as cutting the reserve requirement ratio (RRR) by 50 basis points and lowering the 7-day repo rate by 0.2 percentage points. PBOC Governor Pan Gongsheng described these actions as necessary to alleviate the “clogged” monetary transmission channel, hindered by the property sector’s drag on bank balance sheets and a resulting “crisis” in consumer confidence.

Following the central bank’s stimulus, China’s bond market saw increased demand, with 10-year and 30-year bond yields hitting record lows. Stronger bond demand generally strengthens a country’s currency, and Chinese bonds rallied accordingly. Yields on 10-year bonds rose by 5 basis points to 2.074%, while 30-year bond yields reached 2.182%.

Chinese equities also responded favorably. The Hang Seng Index in Hong Kong posted its best performance in seven months, while the CSI 300 Index on the mainland saw its largest one-day gain in over four years.