There is a great discrepancy between China being one f the world’s biggest economies and still having its rotected and closed currency policy. Until now Renminbi (RMB) has been largely non-convertible although China is among the top exporting countries. In most countries outside of China, no RMB payments an be received from or made to Chinese companies.
This means for foreign companies being engaged in business with China that currency has to be exchanged or each transaction which increases cost and bureaucracy and that for most sales into China, either an agent or the establishment of a subsidiary is required. Lately, the Chinese government is attempting to internationalize the country’s currency especially by
means of the “RMB Trade Settlement Scheme” in which Hong Kong plays a major role.

RMB Trade Settlement Scheme
The so called RMB Trade Settlement Scheme was
introduced in July 2009 allowing selected companies in
Mainland China in certain regions (Shanghai,
Shenzhen, Guangzhou, Zhuhai and Dongguan) to
settle their trade transactions with companies in Hong
Kong, Macau and ASEAN (Association of Southeast
Asian Nations) member states in RMB. When the
project started, only 400 eligible companies in China
could participate. Currently, the scheme has not only
been expanded geographically but more companies
are able to join. In order to do so, companies have to
register with the People’s Bank of China (PBOC) and
Hong Kong Companies can check with the PBOC
whether their business partners in China are eligible to
participate.

Benefits for Hong Kong trading companies
Each Hong Kong Limited Company can have a RMB
business account. Many banks such as for example
the Hong Kong Shanghai Banking Corporation (HSBC)
automatically open such accounts for their clients. This
means that invoices from Chinese companies can be
settled in RMB and that Hong Kong Companies can
issue invoices in RMB to companies in Mainland China
(provided they are eligible to participate).

Buying from China:
• settling in RMB saves the supplier hedging cost
• reduced administrative costs for the supplier
• more efficient as fewer government bodies are
involved when exporting
• supplier receives funds immediately
• simplified tax rebate process for supplier
• opportunity to find new competitive Chinese suppliers
that are only engaged in domestic sales but would be
willing to export if RMB settlement is possible

Result: lower prices for the Hong Kong buyer

Selling into China:
• especially when selling to the larger and more
influential companies in China it will provide a
commercial advantage if payments can be made in
RMB (competitive advantage for seller)
• new business opportunities with Chinese companies
that are not able to receive foreign funds and are not
willing to apply with the State Authority of Foreign
Exchange (SAFE) to make oversea payments
• can sell into China without having to run a company
in Mainland China
• ability to stock up RMB funds outside of China

Result: Opens up new business possibilities and makes
Hong Kong exporter more competitive

The ability to do cross-boarder trade in RMB is a great
opportunity for buyers and suppliers on both sides. Of
course it has to be seen case-by-case if the
corresponding company in China is eligible to join the
scheme. Additionally, for some business structures it
still makes more sense to enter the Chinese market
directly by setting up an entity. But overall, the RMB
Trade Settlement Scheme further strengthens Hong
Kong’s role as a major international finance center and
provides companies with further business
opportunities.

Source: China News, De Neree Corporate Services Ltd & Adbeco Asia Shanghai Ltd, July 2010

For information contact: anika@dntw.com.hk