September 19, 2013 / 2:50 AM / 6 years ago

CNH Tracker-China's cross-border payment woes drive companies to yuan

By Michelle Chen
    HONG KONG, Sept 19 (Reuters) - As Shanghai prepares to
announce details of its much awaited free trade zone next week,
it could take a leaf out of Hong Kong's success story in wooing
foreign companies to switch to the Chinese currency in
conducting trade.   
    Delays in cross-border payments for foreign currencies has
driven more multinational companies to the yuan when doing
business within China, boding well for the wider adoption of the
currency in global trade.
    Companies used to rely mainly on the U.S. dollar to settle
trade with the world's second-largest exporter before they were
allowed to use the Chinese currency under a 2009 pilot program.
    Yuan trade settlement has expanded quickly ever since and
the percentage of China's total trade settled in yuan has risen
from 12 percent in 2012 to nearly 20 percent currently.
    Compared to trade settlement in dollars, yuan payments made
from an offshore subsidiary to an onshore subsidiary within the
same corporate group not only saves time, but avoids foreign
exchange risk, treasurers of multinational companies said.
    Dollar payments into China have to go through a creeping
process before being converted to yuan, or renminbi (RMB),
during which these funds are trapped in dollar accounts and can
not be used for local operations, said a chief financial officer
at a European company which has operations in China.
    "Before switching to RMB billing, we had to wait two to
three months for the dollar to be converted to yuan, but now
settlements could be done within a month," he said.
    Beijing is making efforts to facilitate and streamline
cross-border yuan payments. The People's Bank of China allowed
mainland banks to process trade settlements in yuan for their
clients before verifying documents relate to the trade in July.
    HSBC expects 30 percent of China's total trade flow or 50
percent of bilateral trade with emerging markets to be settled
in yuan in 2015, making the yuan the third largest trading
currency behind the dollar and the euro.       
    Companies that raise funds in overseas markets and hope to
repatriate them back to China may also find it more efficient if
these funds are in yuan, be it through a shareholder's loan or
equity injection.
    Nearly half of foreign direct investment (FDI) going into
China in the first half of this year was in yuan, compared to
about 35 percent in 2012.
    "Cross-border fund flows in yuan are now more convenient
than in dollars in many cases as they only need to be registered
with the SAFE (State Administration of Foreign Exchange) instead
of securing approvals," said Becky Liu, an analyst at Standard
    That said, barriers remain to attract more companies to the
"redback", given rapidly changing regulations in China and the
inertia to stick to dollars.
    Standard Chartered surveyed 307 corporate treasuries in July
which showed that perception of a hard regulatory environment
and difficult internal process changes required are among the
biggest factors limiting the usage of RMB.    
    * SK Global Chemical, a Korean petrochemical company, issued
a 950 million yuan ($155 million) three-year dim sum bond with a
coupon of 4.125 percent, according to a term sheet seen by
Reuters. The order books exceeded 2 billion yuan from 57
    * Citibank (China) said it had launched RMB cross-border
auto sweeping services to facilitate RMB cross-border lending
transactions, making it the first bank to offer such liquidity
management solution in the currency.
    * AIA International was permitted by the People's Bank of
China (PBOC) to invest in China's interbank bond market with
offshore yuan funds.
    * China's central bank has signed a bilateral currency swap
agreement worth 2 billion yuan ($327 million) with the Albanian
central bank, in a move to boost trade and investment between
the two countries.    
    * Bank of Communications  launched its
offshore RMB Financial Bond Index Series which tracks the total
return of the offshore yuan financial bonds. The index starts at
100 with October 1, 2012 being the base date.
    Taiwan's yuan business picks up quickly after a yuan
clearing bank was assigned there in late January. Yuan deposits
in the island surged to 85.1 billion yuan in August, more than
double that in February.LEAGUE TABLES    
    Book runner:          Proceeds (RMB mln):       # of issues:
    1.HSBC                      40,294.3                  119
    2.Standard Chartered        20,184.9                   63
    3.BNP Paribas SA            18,571.8                   58
    4.ICBC                       3,526.7                   10
    5.Bank of China              3,301.7                    6
    * Thomson Reuters data as of Sept 18. 
CNH Tracker-Talk of dim sum bond market decline overblown?
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