Reuters: US Dollar Report: CNH Tracker-China's cross-border payment woes drive companies to yuan

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CNH Tracker-China's cross-border payment woes drive companies to yuan Sep 19th 2013, 02:48 Wed Sep 18, 2013 10:48pm EDT 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 Chartered. 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. WEEK IN REVIEW: * 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 accounts. * 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. CHART OF THE WEEK: 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. RECENT STORIES: CNH Tracker-Talk of dim sum bond market decline overblown? More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS THOMSON REUTERS SPEED GUIDES Link this Share this Digg this Email Reprints

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