The growing use of the renminbi (RMB) to settle trade deals between Chinese companies and their global partners means Canadian firms that want to succeed in doing business in China need to have a good understanding of the country's complex financial system.
HSBC's latest RMB Internationalisation Survey report clearly shows that the renminbi has become a truly global currency and is set to play an increasingly important role in the cash management of Canadian companies doing business in China.
The RMB is now the third most used currency in global finance and the fifth most used global payment currency, up from twentieth only five years ago.
Although RMB cross-border transaction volumes fell in 2017 compared to 2016 due in part to uncertainties in the Chinese economy, increased currency volatility and restrictions on capital outflows, the long-term outlook is positive as the currency stabilizes and the Chinese government remains committed to the internationalization of the currency. The HSBC survey indicates that adoption of RMB among businesses is still increasing. One-third of companies surveyed in 2017 used RMB in cross-border trades, up from 24% the year before. This trend is different for North American companies, where the use of RMB in cross-border trades is lower than that in other jurisdictions and actually decreased slightly from 15% in 2016 to 14% in 2017.
The survey also found that companies (particularly those outside North America) are using RMB in more diversified solutions beyond cross-border trade and payments. This includes using RMB for risk management and foreign exchange hedging, cash and liquidity management, financing, and investments.
Businesses surveyed for the latest report believe that China's ambitious Belt and Road Initiative (BRI) will have a positive impact on the growing use of RMB, which is a key consideration for Canadian companies looking for BRI opportunities.
BRI is expected to add impetus to the continued growth in trade between Canada and China, but Chinese trade with other counties is also increasing, so competition is growing. Canadian companies need a competitive advantage to succeed, which is where HSBC may be able to help.
The bank's strong presence in China can open doors for Canadian companies looking to enter the market for the first time or expand existing business and help them navigate the complicated financial system.
Understanding how to conduct business in China is crucial. For example, the Chinese financial system is not uniform across the country and includes some specific instruments that are not used anywhere else in the world. Banking, payments and the processes around them can vary from region to region, and many companies that operate in China use several different banks. It might take days to complete transactions, which can result in working capital challenges.
Having a knowledgeable strategic banking partner like HSBC on the ground in China can help companies avoid potential pitfalls and establish an efficient and streamlined treasury and payments platform.
This approach is likely to become even more important to Canadian companies as the RMB entrenches itself as the currency of choice for Chinese traders doing business with foreign companies and as BRI projects take hold.
China is the world's second-largest economic power and the world's number one trading nation. Chinese businesses use RMB to settle trade and it's an option that Canadian firms doing business in China should seriously consider.
Key findings of the 2017 RMB Internationalisation Survey:
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