Banking on the renminbi

The Chinese Government is progressively deregulating its currency. Photo / File photo

HSBC Bank is conducting a campaign to educate New Zealand businesses on the advantages of trading with China in the local currency, rather than in US dollars as has been the norm until now.

The Chinese Government is progressively deregulating its currency, the renminbi (RMB), and in August HSBC became the first New Zealand bank able to do RMB transactions.

Business has been limited so far - it did five RMB transactions last month - but the bank says exporters and importers should take note.

HSBC believed in five years' time a third of China's total trade would be in RMB, and by 2020 the currency would be as freely used as the US dollar or the euro, CEO David Griffiths said.

New Zealand will continue to grow its trade with China under the Free Trade Agreement and dealing in RMB offered opportunities.

The bank was running seminars at Chambers of Commerce and talking to government agencies about the potential gains.

"This is a bit like the birth of the euro. Clients don't know exactly yet what the benefits are to them," he said.

Cath Henry, head of payments and cash management, said the bank was seeing clients gain a price advantage of 5-7 per cent by trading with their Chinese partners in RMB. It also helped open doors. "If you're using RMB there's the potential to deal with different and new suppliers."

China was staging liberalisation to control aspects such as inflation, but big changes were occurring on an almost weekly basis.

The People's Bank of China had just announced Chinese companies could seek approval to invest in RMB overseas, and the World Bank had now issued an RMB bond, Henry said. Trading in RMB was still restricted to 20 cities and provinces, but the number of entities authorised to do business in the local currency had shot up from a few hundred to 67,000.

The State Administration for Foreign Exchange (SAFE) had to approve organisations, and New Zealand businesses needed to find out whether their trading partner had that approval. If not the money would get returned.

Many companies had currency hedge contracts in place, but these would start to expire around the second quarter of the year.

"Our expectation is demand [for RMB transactions] will grow around that time," Henry said.

Stephan Deschamps, general manager of treasury for Fonterra, said the services HSBC was offering did not apply to the dairy co-operative because it had a full operation in China and did business in RMB anyway.

However, it was watching developments closely.

"What is clear is that China is pushing really hard for their currency to become a reference currency.

"It's just going to make things easier. At present any transfer of money in or out of China is reasonably complicated, so the easier everything gets the better for us."

Taiwanese/New Zealander David Yu exports New Zealand food, beverage and beauty products to China.

He said it could take days for invoices in US dollars to go through and some companies did not have export/import purchase licences so had to go through a third party.

"A lot of the middle men are collecting the tickets."

He said dealing in RMB would minimise this and reduce risk. A lot of New Zealand exporters were scared they would not get paid in China and "everything people hear is all true", he said.

"As an exporter I'd be intrigued to see what HSBC are proposing and how they can do it. If we can get on board with this we're going to be ahead of the rest of the world."