More Businesses In China To Use RMB In Cross-Border Trade

PRESS RELEASE

1 July 2011

More Businesses In China To Use RMB In Cross-Border Trade, Says HSBC Survey

NZ importers and exporters need to act now*** ***Nearly half to use RMB to hedge foreign exchange risk***

Nearly eight in 10 businesses in mainland China which have not yet started to use Renminbi (RMB) to settle cross-border trade are planning to use or adopt it conditionally in their future transactions, according to a recent survey conducted by HSBC Bank (China) Company Limited (“HSBC China”) among its commercial banking customers in mainland China.

The survey, the first of its kind in China, covered around 1,300 companies in 18 cities to gauge respondents’ motivation, challenges and outlook related to the use of RMB to settle cross-border trade transactions. 45% of the companies surveyed that did not have any experience in RMB trade settlement said they have plans to adopt RMB for future cross-border trade, while a third (33%) will consider using RMB depending on the pricing or services offered by banks. 22% have no plans to use RMB for cross-border trade.

Gary Cross, Head of Trade and Supply Chain, at HSBC New Zealand says: “This survey sends a clear message to New Zealand importers and exporters that they need to be aware of how they can leverage trading in RMB because in 12 months time, trading in RMB will be a reality for the sector.”

“China has been New Zealand’s second largest trading partner for four years now*, so the relevance of China to New Zealand’s trade can not be under estimated. While it might be early days now, if nearly 80% of Chinese businesses plan on using RMB for trading in 12 months time, our advice is to begin planning for this change now rather than leaving it until the last minute,” continues Cross.

Hedging exchange rate fluctuation remains a main motivation The survey further confirms the common belief that the RMB’s exchange rate is the main reason behind a growing preference for the currency in cross-border trade. Nearly half (49%) of the respondents that have started using RMB in cross-border trade said their major motivation is to hedge foreign exchange fluctuation risk, while another 44% said they hold RMB in view of its long-term appreciation. Those two figures are especially high in China’s four major cities (Shanghai, Beijing, Guangzhou and Shenzhen), at 57% and 49%, respectively, higher than the 39% and 38% for the other cities in China.

Despite popularity still some obstacles However, despite the RMB’s increasing popularity as a cross-border trade settlement currency, a major obstacle for 37% of mainland Chinese traders who are yet to use RMB as an alternative trading currency relates to the acceptability of the RMB among counterparties outside China.

Of this proportion, over half (59%) said their overseas counterparties have difficulties in obtaining RMB to pay or lack channels to use the RMB they receive as payment. 31% cited that their overseas counterparties receive insufficient support from banks while a quarter (25%) said that their overseas partners lacked sufficient sources of knowledge and information on RMB trade settlement.

“These issues and challenges are inevitable as RMB goes global. We believe that with the continued extension of the use and investment channels for offshore RMB, overseas markets will see a steady and continued rise in RMB holdings and strengthened local support for RMB settlement over time. HSBC expects that approximately US$2 trillion, more than half of China’s total trade, will be settled in RMB by 2015,” continues Cross.

Strong demand between mainland China and Hong Kong Demand for RMB settlement between companies in mainland China and in Hong Kong ranked the highest, with two-thirds (66%) of the surveyed HSBC China customers having trading partners based in Hong Kong, followed by those with partners in other Asia-Pacific countries (40%) and the U.S. or Europe (31%).

Four largest cities show most interest Respondents in China’s four biggest cities - Shanghai, Beijing, Guangzhou and Shenzhen, showed higher interest in RMB settlement. 29% of the surveyed companies in the four cities plan to adopt RMB in the next 12 months compared to 15% in the rest of the surveyed cities in China.

Banks with RMB products/experience and global network most favoured The companies that are yet to opt for the RMB in settling cross-border trade said they would most favour banks with a wide RMB product range and experience (67%), followed by banks with an extensive global network (59%). Less than half (48%) would choose banks based on their RMB pricing.

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