Renminbi matters
The internationalisation of the renminbi has begun. It is up to SA’S corporates and banks to capitalise on that
Between October 2010 and July 2011, use of the Chinese currency for payments outside China rose by a staggering 874%. A more measured, but still rapid, pace of growth has continued into 2012. In just one month from July to August, for example, renminbi
usage worldwide grew by 15,6%. These trends were revealed by the Swift RMB Tracker, which measures the number of renminbi payments over Swift’s global financial messaging network. In January this year the renminbi was the world’s 20th most used currency on Swift; by November it was in 16th place, just behind the SA rand and the Danish krone.
With China now the world’s biggest exporter, the rise of the renminbi as an international currency is inevitable. Chinese corporates — increasingly important in the global economy and freed up by policy liberalisation in Beijing — will naturally move to transacting in their own currency. The lion’s share of payments in and out of China are still transacted in US dollars, but since June 2010, when trade settlement in renminbi with any corporate in the world was first allowed, the amount of China’s cross-border trade paid for in renminbi has increased to 10%.
This matters to SA. China has been the country’s biggest trading partner since 2009 and volumes are still growing. Total trade with SA rose by 77% in 2011, according to data from China’s customs authority, compared to 35% growth in trade with Brazil and 43% with Russia in the same period.
So far that trade has been one-sided, with China largely buying raw materials from SA and sending back cheap goods. In July this year, President Jacob Zuma made it clear that an unequal trade relationship between the two countries was not sustainable and there are signs that export trends may be changing. In 2011, SA exports to China reached the highest ever level of R85bn; according to research by investment bank Renaissance Capital, only about half of that was minerals.
In October, 68 companies took part in the second SA Expos in Beijing and Shanghai.
18 Last year, this generated export orders for value-added goods of about R400m. It is hoped that this year’s sales will be boosted by a recent memorandum of understanding between China’s International Brand Management Centre (IBMC) and Trade & Investment SA, which stipulates that the IBMC will help to promote SA’s products and services.
Just as importantly, foreign direct investment (FDI) is increasingly focusing on the value-add sectors of the economy. Chinese manufacturer First Automobile Works’ US$100m investment towards a vehicle and truck assembly plant in Coega has produced 1 000 jobs so far.
The result of these trends is that there will be a greater incentive for SA companies to pay and be paid in renminbi. This will extend their reach to more customers in China and will create opportunities for SA banks to develop renminbi-based products and services that enable their clients to manage renminbi cash balances and to risk-manage any renminbi currency exposure.
There could be even greater opportunities for SA as a financial centre. SA has the institutional stability, depth of financial markets and regulatory efficiency that has attracted many corporates looking for a base for their pan-African operations. At the start of last year, just seven countries in the world had greater official Chinese FDI than SA. This makes SA an obvious candidate for an offshore renminbi payments hub like London or Taiwan.
Our data shows that more than 900 financial institutions in over 70 countries are already doing payments business in renminbi. The internationalisation of the currency has begun. It is up to SA’s corporates and banks to capitalise on that.