Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Excerpt from Insights 2012 The ASEAN Chronicles of the Chinese Yuan Lee Bee Bee, Director, Global Product Management, Transaction Banking Anindita Ghosh, Associate Director, Global Product Management, Transaction Banking The Association of Southeast Asian Nations (ASEAN) countries have played a significant role so far in the strides China has made in the internationalisation of the Chinese yuan. With the uncertain direction of the US dollar and the euro being weighed down by mounting debt concerns, Southeast Asian business and banking communities have been increasingly eyeing the yuan as an alternate international trade settlement and investment currency and are adopting the ‘redback’ over the greenback for invoicing and payments. However, being still at an infancy stage of currency internationalisation, more building blocks are needed before the yuan can become a true global reserve currency. The Rise of the Redback Since the launch of the pilot renminbi internationalisation scheme in July 2009, China has been making steady progress in its efforts to position the renminbi (RMB), also known as the Chinese yuan (CNY), as an international trade settlement currency alongside the US dollar. Redenomination of trade settlement in RMB went up by 310% between 2010 and 2011 to over RMB2.08 trillion. RMB-denominated trade comprised 8.3% of total Mainland trade in 2011 versus a mere 2.5% just a year before in 2010. Figure 1: Mainland trade settled in RMB RMB billion 2010 2011 % of total trade H1 67.0 0.7 H2 439.3 4.0 Annual 506.3 2.5 H1 957.6 8.6 H2 1,122.4 8.0 Annual 2,080 8.3 Source: Standard Chartered The Hong Kong offshore RMB market The launch of offshore RMB settlement in June 2010 by China was a key step to speed up the voluntary adoption of the RMB as a trade settlement currency, without causing premature disruptions in the domestic market like inflation because of the increased currency flows. With China’s support, Hong Kong has fast developed as the first offshore RMB business centre. The CNH is a fully convertible cousin of the onshore CNY that is deployable offshore with the only restrictions pertaining to remittance of the CNH into the Mainland. The establishment of this offshore RMB deliverable market in Hong Kong and the subsequent debt capital issuance in the form of CNH bonds has led to a steadily growing pool of RMB-denominated deposits outside mainland China. RMB deposits in Hong Kong doubled from RMB314.9 billion in the beginning of 2011 to RMB627.3 billion at the end of November (see Figure 3). According to research by Standard Chartered, RMB deposits outside mainland China could hit RMB6 trillion by 2015. A total of 76 entities issued RMB ‘dim sum’ bonds in Hong Kong totalling RMB99.1 billion by November 2011 – this is 2.8 times of the amount issued in the whole of 2010. Currently, the amount of RMB trade settlement conducted through banks in Hong Kong is equivalent to more than 80% of the Mainland’s trade settled in RMB. This shows that Hong Kong is an important platform for offshore RMB trade settlement business. The accumulation of offshore RMB has opened another door – for borrowing in RMB. Recently, with the limited liquidity in the global markets, many companies seeking to expand their borrowing options have started also borrowing in CNH. Crossborder RMB financing by onshore entities is also picking up – with the lower offshore financing cost often being the primary commercial considerations driving this. However, RMB capital account transactions in China, despite recent rapid de-regulation, are still strictly monitored and require case-by-case approval. ASEAN – Regionalisation before internationalisation While Hong Kong has become the primary offshore RMB centre, the significance of ASEAN to China and its currency internationalisation efforts continues to grow. Trade volume between China and ASEAN in 2010 was 36 times what it was in 1991. The volume is expected to reach USD500 billion by 2015, according to figures revealed at the China-ASEAN Beijing Economic Forum held on 16–18 December 2011, boosted by the China-ASEAN Free Trade Agreement launched in early 2010. China is now ASEAN’s largest trade partner while ASEAN is ranked third-largest trade partner with China after the European Union and the US. In the first half of 2011, ChinaASEAN trade was almost USD150 billion, representing 8.6% of China’s total foreign trade. It might be a natural development to grow the RMB as a regional currency – as a precursor to taking it global. The ASEAN countries, which include nations ranging from resource-rich Indonesia to financial centre Singapore, are home to 600 million people with a combined gross domestic product (GDP) of USD2 trillion. In addition, they are a source of commodities such as natural gas and crude palm oil, which are important to support the Chinese economy. Hence, the ASEAN region is an obvious test site for CNY regionalisation. Total RMB foreign exchange (FX) trade in Singapore swelled to SGD428 billion in 2011, a 10-fold jump from 2010. This cements Singapore’s position as the second biggest offshore market for RMB trade after Hong Kong. Singapore’s reputation as a major trade redistribution centre and a gateway to the ASEAN region has managed to attracted a steady stream of investors keen to transact in RMB. The other Southeast Asian markets of Thailand, the Philippines and Malaysia are already seeing substantial redenomination and RMB payment flows, and this will continue to grow as their dependency on China trade increases. China has become Thailand’s second-largest export market and its second-largest USDbn Figure 2: China-ASEAN Trade 500 450 400 350 300 250 200 150 100 50 0 500 356 293 213 2009 2010 2011 2012 2013 2014 2015 Source: Standard Chartered Figure 3: RMB deposits in Hong Kong 700 RMBbn 600 500 400 300 200 Dec-11 Jan-12 Oct-11 Nov-11 Sep-11 Jul-11 Aug-11 Jun-11 May-11 Feb-11 Mar-11 Apr-11 Oct-10 Nov-10 Sep-10 Jul-10 Aug-10 Jun-10 Mar-10 Apr-10 May-10 Jan-10 Feb-10 Dec-09 Oct-09 Nov-09 Sep-09 Jul-09 Aug-09 Jun-09 0 Dec-10 Jan-11 100 Source: Hong Kong Monetary Authority source of imports. China has also already signed bilateral currency swap agreements with three ASEAN nations, namely Indonesia, Malaysia and Singapore. However, currency-wise, USD is still the most commonly used currency as a means for trade transactions with China in the region. While the growth statistics are impressive because of the smaller base, one would question why the redenomination to RMB remains slow in the ASEAN region and what can be done to accelerate the internationalisation. Internationalisation hits stormy weather The pace of acceptance of RMB as an international trade settlement and global reserve currency has been and may be further affected by the global market volatility and fast deteriorating economic climate. To become a true global reserve currency alongside the US dollar, policy makers in China have to make the currency fully convertible. This will be challenging in the current economic climate as it could lead to an outbound flood of hot money. This could have a compounding causeeffect relationship with the China economy and the valuation of the RMB currency. At the macro level, a global economic slowdown in 2012 is a possibility. China’s growth slowed for four quarters consecutively in 2011 – with 8.9% in the fourth quarter, down from 9.1% in the third quarter, 9.5% in the second quarter and 9.7% in the first quarter. The World Bank has lowered China’s GDP growth forecast to 8.4% for 2012, amid growing concerns about the effect of the European debt crisis on the world’s second-largest economy. RMB deposits in Hong Kong slipped after November 2011 by 8% to RMB575.9 billion at end of January 2012 (see Figure 3). RMB payments have also declined in the past few months, as per December 2011 SWIFT reports. Interestingly, the value of payments sent and received by countries other than China and Hong Kong, which is mostly the ASEAN corridor, has, however, steadily increased over the past couple of months to 14% in November 2011, from 3% in October 2010. On the other hand, corporates in ASEAN countries still have reservations about transacting in RMB. One of the key considerations is FX volatility. Given the limited investment channels currently available for the RMB, the only motivation for overseas corporates to hold the currency is the expectation of its further appreciation. However, with the recent grim economy outlook around the globe, falling expectations of RMB appreciation have led to a recent decline in deposits. The other consideration is mobility. There are certain restrictions on the movement of RMB in and out of China. Unless supported by evidence of a genuine underlying corporate transaction, transfer of RMB to a beneficiary in or outside China is almost impossible. This has definitely discouraged corporate treasury managers from using RMB in terms of global liquidity management. Navigating through the storm Chinese policymakers have already introduced and will continue to introduce multiple accommodative trade finance, FX and capital market measures to facilitate the RMB internationalisation process. It is evident that the usage of RMB in trade settlement is growing. However, it is still highly concentrated in North Asia. We believe there are plenty of opportunities outside North Asia, particularly in the ASEAN countries, to increase the use of RMB as the currency for trade invoicing. Corporates that deal with China counterparts using RMB would benefit as it minimises FX risk with nondeliverable/deliverable forwards, lowers financing costs and improves efficiency with the elimination of the export verification. To elaborate, for ASEAN corporates buying from China, the benefits of paying Chinese suppliers in RMB are hard to ignore. When invoices are in USD, the Chinese supplier may factor RMB appreciation into the price, hence reducing transparency. By settling in RMB, corporations can significantly improve the terms of trade. At the same time, the Chinese supplier also gets the payment faster, which could allow it to release the goods sooner. As for ASEAN corporates selling to China, if their customers have the necessary clearance to get their onshore RMB payments converted to offshore RMB, ASEAN treasurers will have a lot more flexibility with the cash they generate. However, treasurers need to keep in mind that there is currently still higher risk of convertibility and transferability than with the USD. We have observed that the People’s Bank of China (PBOC) has been cautiously managing the internationalisation of RMB. Since 2009, there have been many regulatory changes with the aim to increase the attractiveness of using RMB as a means for corporate trade transactions. More recently, the RMB Foreign Debt Investors scheme has supported increased channelling of offshore funds back to mainland China, further opening up the market. Demand for RMB bonds still remains high, but supply of CNYdenominated bonds is low and the return from CNH bonds has also been relatively low, coming mainly from yuan appreciation. While capital account flows are still restricted, greater certainty regarding restrictions on moving proceeds of RMB bonds back to the Mainland will help growth in this space. Overall, for the currency to successfully internationalise, it requires China’s willingness to end financial repression in the domestic financial system, lift cross-border capital controls and allow the RMB to appreciate. However, this is a double-edged sword in that it may be detrimental to China’s economy, as RMB appreciation would mean hurting the country’s export attractiveness. The Redback’s ASEAN journey continues The RMB constitutes only 0.31% of total global payments value currently. Considering China’s 9.6% share of world trade in 2010, the RMB can be deemed underutilised at the international level and has potential for substantial growth to develop towards a top global currency, if adequately backed by country regulators and politicians. Globally, financial infrastructure will require significant transformation to accomplish widespread internationalisation. According to some Chinese economists, trade between China and ASEAN countries is expected to grow by 20–30% over the next three years. With more bilateral swap agreements being signed between China and the ASEAN countries, ASEAN central banks will increasingly hold yuan as part of their FX reserves, and this will subsequently make it easier for corporates to invoice and settle in RMB, to take advantage of the potential gains highlighted earlier. Hence, the ASEAN region looks set to be increasingly instrumental in the regionalisation and subsequent internationalisation of the Chinese yuan as it moves towards becoming a true global reserve currency. Lee Bee Bee Lee Bee Bee is with Standard Chartered Bank’s Global Product Management team within Transaction Banking, based in Singapore. She manages the RMB corporate commercialisation and product proposition for global corporate for the bank globally. She has more than 10 years of experience in transaction banking and cash management and joined Standard Chartered in 2007. Prior to that, she worked for HSBC Singapore heading the cash management business implementation and client service teams. She holds a Bachelors degree in Economics/Maths from the National University of Singapore. Anindita Ghosh Anindita Ghosh is with Standard Chartered Bank’s Global Product Management team within Transaction Banking, based in Singapore. She has been responsible for establishing and championing the RMB business for the bank in South East Asia. She joined Standard Chartered in July 2006 post an Honours degree in Mathematics and an MBA in Finance and has cross-geographic experience in a range of roles across consumer banking, strategy and corporate transaction banking product management. Jul 2012 This communication is issued by SC Group. While all reasonable care has been taken in preparing this communication, no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. you are advised to exercise your own independent judgment (with the advice of your professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SC Group expressly disclaims any liability and responsibility for any losses arising from any uses to which this communication is put and for any errors or omissions in this communication. “SC Group” means Standard Chartered Bank and each of its holding companies, subsidiaries, related corporations, affiliates, representative and branch offices in any jurisdiction.