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