Eyes on China
Preparing for the ascent of China’s Renminbi
On 15 July 2010, Chinese executives from the trade and payments sector gathered in Beijing for the first-ever SWIFT Executive Forum - Beijing. The forum, which took place over luncheon, brought together over 30 executives and held great value for the Chinese community.
Ian Johnston, SWIFT's Chief Executive for Asia Pacific, welcomed the executives to the event stating, "This forum provides us with the opportunity to talk about key issues facing our industry. Today we are looking at the internationalisation of the Yuan, a topic that has captured the attention of the world. I am eager to hear your views on how SWIFT -- the cooperative that you own -- can support this process and your own financial institutions."
Yuan Jun De, representing the National Member Group of SWIFT China and Assistant General Manager of Information Centre at Bank of China, echoed that, "SWIFT's role in providing a resilient infrastructure for China's financial services industry is heavily relied upon and appreciated by all of us seated here today. We appreciate their strong commitment to enable our Chinese community, coming together to discuss industry issues, shape market practices and define standards."
Payments leading the way
Providing a payments perspective on the internationalisation of the Chinese Yuan, Ning Bao Qi, General Manager of Operations Management Department at ICBC, shared that since the 1990s, China has already begun regionalising the Renminbi with Hong Kong and Macau, in order to meet the needs of foreign trade and economic activities. "Even back then, we were already engaging cross-border RMB settlements and steadily ‘pushing the Yuan out'."
He went on to say that the opportunities for the Yuan are abundant, but Chinese institutions need to be adequately equipped.
The four opportunities he listed are, firstly, internationalisation of the Yuan will lead to more overseas clients and that would benefit the development of overseas branches of Chinese institutions.
The overseas branches will be able to develop businesses around Renminbi clearing and settlements, enhancing their competitiveness even within the international arena.
Secondly, the opportunities of clearing services for the Yuan and wealth management products will be apparent for the community to seize. Thirdly, as the Yuan internationalises, foreign corporates will have the need to acquire Renminbi products and loans for the expansion of their businesses. Lastly, there will be opportunities for foreign exchange trade, lending and other derivatives product lines, extending the reach of the Yuan to new cross-border financial markets.
With opportunities, it is not without challenges; Mr. Ning stated that Chinese banks would invariably be facing new systemic risks, liquidity management, asset liability management and credit risks management. Chinese institutions will also need to monitor closely domestic and foreign financial flows, ensuring that illegal financial activities like anti-money laundering are tagged with heightened requirements. And as the Yuan internationalises, there will be new market entrants and more participants introduced. Chinese institutions need to leverage the experience they have during the Renminbi pilot and foresee the implications of counterparties risks and risks of information gaps in their daily operations.
Trade as an engine of growth
Shedding light on the progress of the cross-border trade pilot, Jiang Xu, Assistant General Manager of Global Trade Services, Corporate Banking at Bank of China, said that the Yuan has contributed much excitement to the international arena, against the backdrop of the global financial crisis. "And with this Renminbi pilot, the business prospects for Chinese institutions have just been widened," he stated. Now that the initial phases of the pilot are completed, 20 more provinces will soon be implementing cross-border trading transactions in Renminbi also. The pilot area now includes Beijing, Tianjin, Inner Mongolia, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Hubei, Guangdong, Guangxi, Hainan, Chongqing, Sichuan, Yunnan, Jilin, Heilongjiang, Tibet and Xinjiang.
Furthermore, the pilot business scope includes goods traded services and Renminbi settlement of other current accounts and restriction for Renminbi settlement of cross-border trade transactions for overseas countries has been alleviated. "The latest status of the pilot Renminbi settlement of cross-border trade transactions is expected to further boost trade and investment facilitation for China," said Mr. Jiang.