Businesses need to learn more about renminbi (RMB), because dealing in China’s currency could save them money according to a study from HSBC.
Trade with China totalled $73 billion in 2013, and a majority of Canadian companies intend to increase the volume of their business in the country. “Canadian Companies Leaving Renminbi on the Table” suggests that 55% of Chinese businesses would be willing to cut their trade partners a break of up to 5% if they denominated deals in yuan. But Canadian firms haven’t caught on to the opportunity:
Canadian companies are the least likely of those surveyed to use RMB for trade settlement. Only 5% of the Canadian businesses surveyed said they had conducted cross border transactions in the local Chinese currency, compared to 22% of global companies and 17% of US companies.
Dealing in the redback is a complicated process—China has historically maintained tight currency controls, and buying and selling yuan has to go through a renminbi exchange. But the Chinese government has liberalized its approach in recent years, lifting restrictions on cross-border trade denominated in RMB. The federal government has indicated its interest in a free trade deal with China, something that would undoubtedly take years to negotiate but would result in closer economic relations.
And companies considering transacting in the Chinese currency could have an easier time if plans for an offshore renminibi hub in Vancouver are realized. The Toronto Financial Services Alliance and AdvantageBC today announced a partnership with Ontario, B.C. and federal government officials to promote a Canadian trading centre for the redback.
A RMB clearing centre on our soil could boost trade with China by $500 million a year according to the Asia Pacific Foundation of Canada, and could attract more foreign direct investment from Canada’s second-largest trading partner:
China has a large and expanding pool of savings from its household, private, and government sectors. As capital controls are slowly removed, an important amount of those savings will be invested offshore. Canada has an opportunity to present itself as a destination of choice for Chinese investment.
But there are already opportunities to work in RMB. Several banks, including HSBC, offer yuan-denominated commercial savings accounts, and B.C. became the first foreign government to issue bonds in the RMB market, raking in $428 million from primarily Asian investors.
Business operating in China should follow premier Christy Clark’s lead and engage with the yuan. There’s money to be made in the redback—if you know how to use it.