A new HSBC survey reveals widespread confidence in the future of RMB as major global trade and investment currency amongst mainland Chinese corporates.
The vast majority (77 percent) of Chinese corporates surveyed said they expect one-third of all Chinese trade (around US$2 trillion) to be conducted in RMB by 2015 (vs 10 percent YTD). And 30 percent plan to use RMB for investment-related purposes in the next 12 months.
The survey also identified clear cost advantage to businesses outside mainland China that choose to settle their trade in RMB.
Half of all Chinese corporates stated they were willing to offer better pricing or terms in return for using RMB to settle trade: 41 percent revealed they would be willing to offer discounts of up to three percent and nine percent were willing to offer even greater discounts.
Cross says use of RMB in cross-border business has expanded both within trade and beyond as mainland authorities develop their regulatory framework to open up and internationalise the currency.
Moves by the Chinese government to increase exchange rate flexibility and simplify transaction processing have changed the dynamics of cross-border RMB business.
The proportion of corporates using RMB because they expect the currency to appreciate has fallen dramatically. Only 25 percent of respondents said they used RMB in order to benefit from currency appreciation in 2012, compared to significant 44 percent in 2011.
Instead, China-based corporates reported that exchange risk management and operational convenience were the main reasons for choosing RMB for cross-border transactions.
Seventy-two percent of those surveyed use RMB to help manage their foreign exchange risks, sharp increase from 49 percent in 2011 and 44 percent stated that the currency brought operational and accounting advantages (vs 34 percent in 2011).
“China’s total cross-border trade settled in RMB increased by factor of four in 2011 and now accounts for around 10 percent of China’s total cross border trade,” says Cross. “New Zealand companies may want to consider having discussions with Chinese buyers and sellers about settling in RMB.”
While import and export transactions were the most common type of RMB business that respondents engaged in (47 percent and 42 percent, respectively), the survey revealed that 30 percent plan to use RMB for other purposes in the next 12 months.
Fifteen percent of corporates said they intend to use RMB for capital injections, 11 percent plan to use it for offshore loans and four percent for cross-border acquisitions (vs 11 percent, eight percent and one percent who used RMB for these purposes in 2011, respectively).
