2014-15 Canada-China Business Forum Magazine - Page 32

Trading in Reducing Costs, Renminbi: Managing Risks Over half of Chinese businesses would cut prices by up to 76% 5% to deal in RMB of RMB users say it helps international companies gain a financial advantage TRADE Trading in Renminbi can also help corporations to reduce their foreign exchange risks and to manage their cash flows better. While firms that still deal in U.S. dollars or Euros can hedge their exposure to the Renminbi using Non-Deliverable Forward Contracts (NDFCs), this method creates uncertainty. This is because NDFCs settle at the onshore rate, which on any given day could potentially be percentage points out of line with the offshore rate. So the attraction of the physical market is that corporates get much more certainty and control over their cash flow. There are also plenty of offshore options for firms looking to invest their surplus Renminbi. These include time deposits; “Dim Sum” corporate and government bonds, in which yields are often higher than in dollars; RFQII (Renminbi Qualified Foreign Institutional Investor) funds, which allow offshore entities to invest in the onshore stock market; and Renminbi equities. With this combination of benefits – managing risk, reducing costs and new opportunities – Renminbi creates a lot more choices for businesses operating in China. “China’s internationalization process will move gradually, feeling its way across a river, as a Chinese saying goes, one stepping stone at a time. ” be any going back. In fact, HSBC expects the Renminbi to be fully convertible in two to three years. 3 Firms dealing with China should at least explore the new options that are available to them when managing their cash flows. \\ DP 1 HSBC, RMB International Study 2014 (June 2014) NO GOING BACK by/par DAVID PAVITT borders. However, the situation changed four years ago when the Chinese government introduced measures to allow Renminbi accounts to be held offshore, creating the opportunity for foreign businesses to conduct physical trades in the currency. Firms that do regular business with China, but have not explored the benefits of trading in Renminbi, could be missing out. F irms that do regular business with China, but have not explored the benefits of trading in Renminbi, could be missing out. There is currently a stark mismatch between China’s huge importance to global trade and the &V