Liquidity in Asia is particularly worrying
Chinese Yuan Reuters

Asian manufacturing hubs China and South Korea are expanding their trade relations by establishing a yuan clearing system in Seoul to enable direct trade deals between the countries.

The Peoples' Bank of China (PBoC) has signed a memorandum of understanding (MOU) with the Bank of Korea for the renminbi clearing house in the Korean capital.

That coincides with Chinese President Xi Jinping's visit to South Korea. Xi earlier agreed with South Korean President Park Geun-hye on a series of measures to boost offshore use of the yuan, including launching direct trading of the yuan against the won.

The timescale for the new yuan clearing system is yet to be revealed.

Data from the Bank of Korea earlier showed that yuan deposits at banks in South Korea inched up by a net $640m (£373m, €469m) in June to a record high of $11.97bn. It was the 12th straight month for yuan deposits to reach a record high.

China has been South Korea's biggest trading partner since 2004 and accounted for about 25% of the latter's exports in the last six months.

The new clearing house in Seoul is part of China's attempt to promote the use of its currency as an alternative to the US dollar in global trade and finance. The renminbi is currently the seventh most used payment currency across the globe.

A few days before, the French central bank signed an MoU with its Chinese counterpart to set up a yuan clearing system in Paris. China signed similar agreements with Germany also.

In June, a clearing house opened in London to enable direct exchanges between the yuan and the pound. The British pound became the fifth currency to be exchangeable directly for yuan.

Other currencies eligible for direct exchange with the yuan are the Australian and New Zealand dollars, as well as the Japanese yen and the US dollar.