A view of Yangon, Myanmar on Tuesday.

Financial cooperation between China and Myanmar is set to boom as bilateral ties will be further lifted during Chinese President Xi Jinping's upcoming state visit to the South Asian nation, said local business representatives, adding that a closer financial bond with China is urgently needed by Myanmar and could keep its economy afloat.

Industry insiders said a rising financial connection between the two neighboring economies will make bilateral trade more efficient and promote the yuan's internationalization, which will further break the hegemony of the US dollar in the region.

As China remains Myanmar's main trading partner and main source of foreign investment, and Myanmar urgently needs Chinese capital to keep its economy afloat, financial cooperation between the two Asian economies under the Belt and Road Initiative (BRI) bound to flourish, He Biqing, head of the Yangon subsidiary of Industrial and Commercial Bank of China (ICBC), told the Global Times on Tuesday. 

China has long been Myanmar's largest trading partner and important source of foreign investment. From January to September in 2019, bilateral trade reached $13.54 billion, a year-on-year increase of 17.9 percent. Meanwhile, Chinese companies invested $150 million in Myanmar. 

The value of newly contracted Chinese projects in Myanmar reached $4.77 billion, a year-on-year jump of 238.1 percent, during the period. 

Trade with China accounts for 40 percent of Myanmar's total foreign trade, and China's investment in Myanmar represents one-third of the nation's foreign investment. 

In January 2019, Myanmar added both the yuan and the yen as permissible settlement currencies for its international payments and transfers. 

In response, ICBC launched the Myanmar-China Financial Express last year, a quotation mechanism that pegs the yuan against the kyat, aiming to meet the soaring demand from Myanmar. 

"We saw a hike in the use of the yuan in settlements and clearing in Myanmar last year," He noted. 

As President Xi's upcoming visit will expand and deepen bilateral trade in sectors including seafood exports, energy, basic infrastructure, finance and other labor-intensive sectors, financial ties between the two are set to boom and the yuan will be used in settlements and clearing more frequently.

Xi is set to pay a state visit to the country on Friday and Saturday. 

"In the past, the massive trade and investment transactions were settled by a third-party currency, [like the dollar], which is less efficient. It also increases exchange rate risks and the costs of currency conversion," He explained. 

He noted that using the yuan as a clearing currency could insulate companies in both countries from rate fluctuations, making cross-border capital flows more smoothly.

"As China-invested BRI projects speed up and Myanmar's financial industry gradually opens up, financing needs will rise.  Bilateral financial cooperation will also lead to cooperation in other areas that will benefit living standards and contribute to Myanmar's social development," he said.

ICBC set up the subsidiary in Yangon in September 2015, becoming one of the first foreign banks being approved to do business in the country. Now, ICBC's businesses cover areas such as deposits, loans, clearing, financing and foreign exchange transactions.  

The inclusion of the yuan in Myanmar's official settlement currencies marks a significant step in the Chinese currency's internationalization, said Liu Yin, chairman of the Myanmar-China Entrepreneur Association. It also paves way for promoting the yuan's use in the Southeast Asian region, where more companies and institutions that have surging business  cooperation with their Chinese peers will opt for the yuan as a clearing currency. 

"Myanmar will further relax restrictions on setting up yuan-denominated accounts and using the yuan nationwide," Liu told the Global Times. 

China has signed currency swap agreements with more than 40 countries and regions, and more than half are along the routes of the BRI. The total value has surpassed 3 trillion yuan ($434.84 million), according to a report from domestic news site Securities Daily.