Unravel the complexities of RMB Internationalisation The Rising Role of RMB- A Corporate Perspective 24 May 2012
1. RMB Internationalisation Overview A Global Trade Currency A Global Investment Currency 1 2 3 A Global Reserve Currency JUNE 2009 Pilot launch of cross-border RMB trade settlement scheme JUNE 2010 Expansion of cross-border RMB trade settlement scheme AUGUST 2011 Announcement on further expansion of the scheme to nationwide Mar 2012 Announcement to abolish the MDE requirement JULY 2010 Foundation of the offshore RMB (CNH) market in Hong Kong AUGUST 2010 Onshore RMB inter-bank bond market opened to selected offshore RMB Financial Institutions JANUARY 2011 Mainland Enterprises can make overseas investment in RMB in the form of ODI AUGUST 2011* Hong Kong enterprises can invest in Mainland securities under the RQFII channel Mainland companies can issue RMB bonds in Hong Kong Mainland investors can buy Exchange-Traded Funds linked to Hong Kong stocks OCTOBER 2011 Formalization of RMB Foreign Direct investment (FDI) Sep 2011 Nigeria announces plans to invest 10% of its foreign exchange reserves into RMB MAR 2012 Japan received approval to purchase RMB65bn Chinese government debt By the 2020s RMB to be accepted across the world as an international currency, paving the way for full convertibility and reserve currency status? * Exact implementation timeline to be announced P.2
2. RMB Trade and Deposit Volume Growth (Hong Kong) 300 250 200 As of February 2012 > RMB 2,600bn of China s trade settled via Hong Kong 2011 (RMB1,915bn) has more than 5x of 2010 (RMB369bn) > RMB 560bn Deposit in Hong Kong Nearly 2x compared to the beginning of 2011 (RMB 315bn) About 10% of total Hong Kong deposits 600 500 400 RMB Billion 150 100 50 0 Jul-09 Aug-09 Sep-09 RMB Trade Settlement Vol (Monthly) RMB Market Deposits Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 11-Apr 11-May 11-Jun 11-Jul 11-Aug 11-Sep 11-Oct 11-Nov 11-Dec 12-Jan 12-Feb 300 200 100 RMB Trade Settlement figure is for trade settled in Hong Kong Source: PBoC, HKMA, CEIC, HSBC 0 RMB Billion P.3
3. RMB Market Potential After USD and Euro, RMB is expected to replace GBP as the 3rd popular currency for trade settlement globally (1) Nearly 8 in 10 businesses in mainland China which have not yet started to use RMB to settle cross-border trade are planning to use or adopt it conditionally in their future transactions (2) More than USD 2 trillion or one half of China s total trade flows with emerging markets expected to be settled in RMB by 2013 to 2015 (3) Further financial reform to put internal financial house in order (3) Paving the way for full RMB convertibility (3) 2010-2011 2013-2015 2015-2020 Notes: (1) HSBC Trade Confidence Index - Oct 2011 (2) HSBC RMB Cross-Border Trade Settlement Survey 2011 (3) HSBC in-house estimates P.4
4. Potential Benefits for Your Company Foreign Exchange Cost Currency fluctuation premium Administrative Process SAVE Potential RMB Appreciation GAIN HEDGE Payables and Receivables Onshore / Offshore Investment Returns Importer/Exporter Relationship DIVERSIFY Asset and Liabilities Customer Base Currency portfolio Risk Exposure P.5
4.1 Benefits for Overseas Exporters Goods Importer (China) Exporter (Overseas) RMB Payments HEDGE Natural hedge of RMB position for future payments Flexibility to exchange the received RMB back to other currencies DIVERSIFY Access to a wider importer base who might otherwise have limited access to foreign currency and adverse to FX risks Currency portfolio and risk exposure profile GAIN Secure / maintain buyer relationship Potential RMB Appreciation Accumulating RMB offshore for future investment P.6
4.2 Benefits for China Importers Goods Importer (China) Exporter (Overseas) RMB Payments HEDGE Natural Hedge of RMB position for receivables in the same currency SAVE Save unnecessary FX cost as payables and receivables are in one single currency P.7
4.3 Benefits for Overseas Importers Goods Exporter (China) Importer (Overseas) RMB Payments SAVE By eliminating the FX concern of the exporters in China, importers may save the currency fluctuation premium in the RMB quotation of up to 5-7% DIVERSIFY Access to a wider exporter base who might otherwise have limited access to foreign currency and adverse to FX risks Currency portfolio and risk exposure profile GAIN Secure / maintain supplier relationship P.8
4.4 Benefits for China Exporters Goods Exporter (China) Importer (Overseas) RMB Payments HEDGE Natural Hedge of RMB position for payments in the same currency SAVE Save unnecessary FX cost as payables and receivables are in one single currency Save administrative process in applying for export tax rebate GAIN Accumulating RMB onshore for: Onshore RMB investment Potential RMB Appreciation P.9
5. Applying RMB in Your Business 3. What to do with idle RMB? How? 1. Can I pay or receive in RMB? When? ONSHORE OFFSHORE 2. Do I need an RMB account? Where? P.10
5.1 Can I pay or receive in RMB? When? PAYMENTS INTO THE MAINLAND 1. Trade payments for GOODS Mainland Enterprises with Import and Export qualifications may export goods in RMB* 2. Trade payments for SERVICES Allowed (contract and invoice in RMB required) 3. Intercompany loans Allowed (subject to SAFE filing) 4. Additional Capital Infusion Allowed (subject to MOFCOM approval) 5. Foreign Direct Investment Allowed (subject to MOFCOM approval) 6. Expatriates Salaries Not Allowed Mainland China RMB Area 1. Trade payments for GOODS Allowed (contract/invoice/customer declaration required) 2. Trade payments for SERVICES* Allowed (contract and invoice in RMB required) 3. Intercompany loans Case-by-case approval by PBOC/SAFE 4. Capital investment overseas (ODI) Allowed (subject to MOFCOM approval) 5. Dividend Payments / Repatriation of Profit Allowed 6. Expatriates Salaries Allowed PAYMENTS FROM THE MAINLAND Overseas-to-overseas RMB transactions are not regulated by PBOC, but may be subject to the local regulations elsewhere * Mainland Designated Enterprise (MDE) requirements will remain in force until publication of blacklist names - Contact local HSBC branches for more information P.11
5.2 Do I need an RMB account? Where? OPTION 2: Current a/c and saving a/c allowed for both resident and non-resident companies Interest not regulated No restrictions for currency exchange Cash withdrawal / deposit allowed No restrictions on the transfer of RMB funds between different customers in Hong Kong MAINLAND CHINA HONG KONG OTHER COUNTRIES China Company OPTION 1. NON- RESIDENT RMB A/C (MAINLAND CHINA) OPTION 2. OFFSHORE RMB A/C (HONG KONG) OPTION 3. OFFSHORE RMB A/C (OTHER COUNTRIES) Overseas Company OPTION 4. NO RMB A/C OPTION 1: PBOC approval is required Regulated interest Currency exchange not allowed Cash withdrawal/deposit not allowed Same-name funds transfer between NRA and overseas a/c is allowed OPTION 4: Subject to local regulations and banking infrastructure Payment proceeds will be converted to/from the denominated account currency OPTION 3: Subject to local regulations and banking infrastructure No restriction from PBOC P.12
5.3 What to do with idle RMB? How? Offshore Liquidity Management Solutions Outside China, RMB is treated as another foreign currency and Global Liquidity Solutions (GLS) suite is applicable depends on local practices and regulations in respective jurisdictions. Offshore RMB Products (Hong Kong) Following the establishment of the interbank market in 2010, Hong Kong is developing as an offshore RMB Investment Centre with a wide range of RMB investment products available: Cash Concentration Single Currency Notional Pool Multi-Currency Notional Pool (Interest Optimisation Facility) X-border/ X-currency Yield Enhancing (Interest Enhancement Facility) Time deposit, certificate of deposit Primary and secondary RMB bonds trading FX linked structured deposit Interest rate linked structured deposit Equity linked structured deposit Gold linked structured deposit RMB investment funds P.13
6. HSBC s RMB Solutions and Global Capabilities Trade and Supply Chain Payments & Cash Management Trade account (no new a/c needed) Import and export services, including: Open account trading Documentary credits Documentary collections Trade finance DC advising Internet Trade Services (ITS) via BIB and HSBCnet Unravel the complexities of RMB and make it just another currency option for your business with our on the ground expertise and comprehensive suite of onshore and offshore RMB solutions. Saving / Current accounts Remittances (TT/RTGS/AutoPay) Payments / Collections Advising Cheques / Cashier s Order Bill Payment Cheque Collection Solutions Time Deposits Currency Exchanges Liquidity Management Online RMB transactions and reporting via BIB, HSBCnet & HSBC Connect As RMB internationalisation is rapidly evolving, services offered may vary by country or region. Please note that the products and services mentioned above may not be available in all countries or regions and are only available in jurisdictions where the respective HSBC entities are authorised to operate. P.14
7. HSBC s RMB Solutions and Global Capabilities (Cont d) Russia Canada USA Bermuda Mexico Bahamas Costa Rica El Salvador Panama Brazil UK Ireland Germany Poland Luxembourg Kazakhstan Jersey Czech Switzerland France Slovakia Georgia Spain Monaco Armenia Italy Japan Greece Turkey South Korea Malta Lebanon Israel Kuwait UAE Qatar Bangladesh Saudi Arabia India Taiwan Hong Kong Oman Thailand Macau Philippines Vietnam Sri Lanka Malaysia Brunei Singapore Indonesia Paraguay South Africa Mauritius Australia Chile Argentina Uruguay RMB Capabilities in Over 50 global markets New Zealand P.15
8. HSBC s RMB Milestones OFFSHORE First foreign bank to settle cross-border RMB Trade in Hong Kong (& Macau) First to issue RMB Bonds and No 1 in offshore RMB bonds: 79 issues (RMB32.9bn), 21.8% market share First-in-the-market: HSBC RMB Trade Finance Standard Rate >280,000 accounts with RMB capabilities and Pioneer of all new product launch in HK market: Structured deposits, CDs, insurance, HSBC RMB Trade Finance Standard Rate, RMB current account, cheque services, Cashier s Order <<2011>>, Demand Draft <<2011>>, autopay, Business Card <<2011>>, Business Internet Banking and HSBCnet support RMB transactions, etc. Launched first RMB IPO in Hong Kong as a Joint-Lead Arrangers in Hui Xian REIT IPO. HSBC becomes bookrunner and global coordinator for Ministry of Finance RMB offshore bond <Sept 2011> Best Offshore RMB Bond House and Dim Sum Bond House by FinanceAsia and IFR respectively. Pioneered HSBC Offshore Renminbi (RMB) Bond Index <2011> HSBC becomes first and only foreign custodian bank for RMB Qualified Foreign Institutional Investors (Dec 2011) Lending interbank activity: HSBC publishes daily Interbank Offer Rate for CNH money market <Jan 2012> MAINLAND CHINA One of the first foreign banks granted as a RMB agency bank. First International bank to complete transactions in all provinces/cities in which HSBC has a presence HSBC becomes first and only foreign custodian bank for RMB Qualified Foreign Institutional Investors (Dec 2011) GLOBAL First foreign bank to settle cross-border RMB Trade across all 6 continents. RMB capability in over 50 countries, across all continents. HSBC Taiwan - First foreign bank with license to offer RMB products and services and first foreign bank to complete a RMB cross-border transaction in Taiwan. First to launch RMB Personal banking in Brunei, New Zealand, Thailand and Mauritius, also available in eight other Asia Pacific Sites (Hong Kong, Macau, Singapore, Japan, Malaysia, Korea, Australia & Philippines). Over 30 roadshows and seminars conducted to raise awareness of RMB internationalisation, covering regions including Asia Pacific, Western and Eastern Europe and the US. HSBC takes key role developing London as a RMB financial centre. P.16
Disclaimer There may be exchange rate risks if you choose to convert RMB into other currencies. RMB is currently not freely convertible and is subject to certain conversion restrictions. This document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of or reliance on this document or any information contained herein by the recipient or any third party. Any examples given are for the purposes of illustration only. The opinions in this document constitute our present judgment, which is subject to change without notice. This document does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this document. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. This document, which is confidential and not for public circulation, must not be copied, transferred or the content disclosed, in whole or in part, to any third party. The document should be read in its entirety. Copyright. The Hongkong and Shanghai Banking Corporation Limited 2010. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Hongkong and Shanghai Banking Corporation Limited. All the information set out in this presentation is provided on the best of the Bank's current knowledge and understanding of the relevant law, rules, regulations, directions and guidelines governing or otherwise applicable to RMB trade services but the Bank makes no guarantee, representation or warranty and accepts no liability as to its accuracy or completeness. Please refer to any updates that shall be published or issued by our Bank from time to time including notices that we place at our HSBC branches. P.17