8 in 10 businesses in China to use RMB in cross-border trade

But a good 37% of Chinese traders still doubt the acceptability of RMB outside China, reports HSBC.

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 China among its commercial banking customers in mainland China. Despite the RMB’s increasing popularity as a cross-border trade settlement currency, a major obstacle for 37 per cent 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. Thirty one per cent 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.

Willie Tham, Head of Commercial Banking at HSBC Singapore, said: “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.”

The survey, which is 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. Forty five per cent of the companies surveyed which did not have any experience in RMB trade settlement said that 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. Twenty two per cent have no plans to use RMB for cross-border trade.

Elaborating on the opportunities for RMB trade in Singapore, Mr Tham added, “As a key provider of RMB services in Singapore, HSBC is seeing more and more clients gearing up to ride the momentum of the RMB internationalisation agenda. HSBC's Trade Confidence Survey has shown that 18% of businesses in Singapore and 21% in South East Asia plan to use RMB as a trade settlement currency in 2011. These exciting developments in the offshore RMB market will certainly present Singapore companies with more options to make their investment and trade settlement in RMB more viable and economically beneficial, and hopefully bring the prospect of international RMB activity closer to Singapore. Going forward, HSBC expects that approximately US$2 trillion, more than half of China’s total trade, will be settled in RMB by 2015.”

Respondents in China’s four biggest cities - Shanghai, Beijing, Guangzhou and Shenzhen, showed higher interest in RMB settlement. Twenty nine per cent of the surveyed companies in the four cities plan to adopt RMB in the next 12 months compared to 15 per cent in the rest of the surveyed cities in China.