RMB trad­ing hub fac­ing chal­lenges

China Daily (Canada) - - FRONT PAGE - By WANG RU in Bei­jing wan­gru@chi­nadaily.com.cn

It’s been more than four months since the trad­ing hub of China’s cur­rency, the ren­minbi, was set up in Toronto, the first one in the North Amer­ica.

With tremen­dous po­ten­tial to boost bi­lat­eral trade be­tween Canada and China, the trad­ing hub, how­ever, faces chal­lenges that in­clude lack of sup­port from ma­jor Cana­dian banks.

“The de­vel­op­ment of the trad­ing hub of RMB needs par­tic­i­pants of ma­jor Cana­dian banks and com­pa­nies, if not so it won’t ful­fill the mis­sion to boost the bi­lat­eral trade,” said Zhu Mingx­uan, pres­i­dent and chief ex­ec­u­tive of­fi­cer of In­dus­trial and Com­mer­cial Bank of China (Canada), which op­er­ates the Cana­dian RMB hub, launched on March 23, 2015.

In an ex­clu­sive in­ter­view with China Daily Canada, Zhu said sev­eral Cana­dian banks, for in­stance the Royal Bank of Canada (RBC), have opened ac­counts, but “only some small amount of trans­ac­tions” have taken place. “With­out large amount of ren­minbi trans­ac­tions through the trad­ing hub, the es­tab­lish­ment of such a hub is mean­ing­less,” he said.

Zhu added: “The cur­rent trans­ac­tions of the trad­ing hub are mostly con­trib­uted by Chi­nese banks and ICBC’s branch in New York.”

Though ICBC is the largest bank in the world, its branch in Canada is “a very small bank,” Zhu said, adding that with­out the busi­ness from Cana­dian banks, the hub will not suc­ceed.

The ren­minbi hub is seen as an im­por­tant plat­form to re­duce cur­rency ex­change costs, re­duce trans­ac­tion risks, and al­low faster and more di­rect pay­ments for Cana­dian busi­nesses trad­ing with Asia, which could make Chi­nese small- and medium-sized busi­nesses fa­vor do­ing busi­ness with Cana­dian part­ners.

Zhu hopes that ma­jor Cana­dian banks like TD Bank will re­al­ize the strate­gic mean­ing of the RMB trad­ing hub for them. He said the Cana­dian banks should see the trend that China’s RMB will be an in­ter­na­tion­al­ized cur­rency in the fu­ture. “We are not here to com­pete with lo­cal banks, in­stead to cre­ate op­por­tu­ni­ties for mu­tual ben­e­fits,” said Zhu.

By the end of 2014, RMB ranked fifth as the most traded cur­rency, ac­cord­ing to SWIFT’s re­port. Since 2009, China has signed cur­rency swap agree­ments with more than 30 re­gions and coun­tries, in­clud­ing Ar­gentina, Be­larus, Brazil, Canada, Ice­land, In­done­sia, Malaysia, Sin­ga­pore, the ROK, Thai­land, the United King­dom and Uzbek­istan

“Com­pare to Amer­i­can banks such as the Citibank, Cana­dian banks lack global pres­ence es­pe­cially in Asia,” said Zhu. “The in­ter­na­tion­al­iza­tion of the RMB will have a huge po­ten­tial to pro­mote Cana­dian banks as well.”

Zhu said a ma­ture RMB hub needs not only cur­rency trad­ing, but also a se­ries of RMB-re­lated fi­nan­cial prod­ucts, such as loans, se­cu­ri­ties and bonds.

An HSBC re­port showed that only 5 per­cent of Cana­dian firms sur­veyed use the hub in trade, well be­low the global av­er­age of 22 per­cent. How­ever 37 per­cent of Cana­dian firms sur­veyed ex­pect to use the RMB in the fu­ture.

Econ­o­mists point out that the weak­en­ing Cana­dian dol­lar is one of the rea­sons con­tracts set­tled in RMB are more at­trac­tive to Chi­nese buy­ers than Cana­dian busi­nesses.

Another bar­rier is sus­pi­cion from out­dated per­cep­tions about the sta­bil­ity of the RMB.

The key fac­tor driv­ing RMB adop­tion

has been the Chi­nese gov­ern­ment. Chi­nese author­i­ties have been re­lax­ing cum­ber­some rules and pro­vid­ing more sta­bil­ity through the in­tro­duc­tion of global cur­rency swap agree­ments like the one signed with Canada in late 2014.

But as the HSBC re­port re­vealed, Cana­dian com­pa­nies “have not kept up to date with these ini­tia­tives.”

David Watt, Cana­dian economist with HSBC Bank Canada, said in the re­port that Canada would do well to think of China as an op­por­tu­nity, rather than with sus­pi­cion.

Watt, urg­ing the Cana­dian com­pa­nies to think more broadly, said “Cana­dian busi­nesses, in­stead of won­der­ing about the US con­sumer, need to think about the Chi­nese con­sumer and the Chi­nese econ­omy.”

C. J. Gavsie, head of For­eign Ex­change Prod­ucts, Bank of Mon­treal’s cap­i­tal mar­kets unit, said in an ear­lier in­ter­view that if the RMB hubs seen else­where like the UK and Sin­ga­pore are repli­cated suc­cess­fully in Canada, to­tal trade be­tween Canada and China could dou­ble — or even triple — in the 12 months fol­low­ing the es­tab­lish­ment of a hub.

The Toronto RMB hub serves as con­duit for 24-hour cov­er­age of global ren­minbi trans­ac­tions, en­abling busi­nesses to con­vert Cana­dian dol­lars di­rectly into Chi­nese cur­rency. It is re­ported that the abil­ity to di­rectly trade in RMB is ex­pected to add as much as $32 bil­lion in ex­ports for Canada.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.