China makes a record offshore yuan loan deal in a boost to the currency’s globalisation

The Bank of China has arranged a 14.2 billion yuan (US$1.98 billion) syndicated loan for Australian metals producer Fortescue. The deal represents China’s largest offshore yuan loan ever to a non-Chinese company and is the first of its kind for an Australian firm, the South China Morning Post reports.

Fortescue, the world’s fourth-largest iron ore producer, will use the funds to buy clean energy technology and other machinery from Chinese suppliers. According to the Post, the company will repay the loan with yuan earned from iron ore sales to China, creating what the Bank of China described as a “cross-border closed-loop yuan financing solution.”

Fortescue has longstanding commercial ties with China, which accounts for about two-thirds of Australia’s iron ore exports. The company says the loan will also help fund its decarbonisation strategy, including plans to develop a “green steel” industry.

[See more: China’s central bank unveils plans for an international digital yuan centre]

In a statement issued Friday, Fortescue founder and chairman Andrew Forrest said that his company was “advancing the green technology needed to lead the global green industrial revolution” alongside China, as the US “steps back from investing in what will be the world’s greatest industry.”

The loan marks a significant step forward in Beijing’s efforts to internationalise the yuan and reduce widespread global reliance on the US dollar. The offshore yuan has gained around 2 per cent against the dollar this year, while the US dollar index has fallen more than 9 per cent, the Post says.

China’s central bank recently pledged to expand the currency’s role in trade settlement and cross-border financing, strengthen the offshore yuan market, and grow its Cross-border Interbank Payment System – a yuan-based alternative to the Swift network.

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