Canada: A RMB Hub for the Americas

Canada: A RMB Hub for the Americas

3 74 % Canadian companies are embracing trade with Mainland China. 74% of Canadian companies surveyed expect to increase trade with the country in the next 12 months well above the global average of 59%. HSBC, Corporate Survey Global Overview of RMB The Renminbi (RMB) has become one of the top five most used global payment currencies and is the 2nd most used currency for cross border payments with China and Hong Kong. China overtook the U.S. in 2013 to become the world s largest trading nation, with its trade in goods surpassing US$ 4 trillion. In November 2014, an agreement was reached between Canada and China, which designated Canada as the first RMB trading hub in the Americas. This agreement includes a swap-line between the Canadian and Chinese central banks, the designation of the first clearing bank in the Americas Industrial and Commercial Bank of China (Canada), and an investor quota that allows access to Chinese capital markets.

5 Why Use RMB? The Renminbi (RMB) provides many advantages for corporate clients, SMEs, asset managers and retail customers: Today, more than one third of financial institutions around the world are now using the RMB for payments to China and Hong Kong. From 2012 to 2014, the adoption rates for the RMB were: Ability to deal in a local market which is efficient, convenient, transparent and familiar Opportunity for corporate savings through potential discounts by Chinese businesses and the elimination of FX premiums Hedging advantages by hedging in Renminbi, companies can reduce risk in invoicing and lower the transaction costs of trade and investment RMB provides new investment options for investors searching for yield such as renminbi-denominated debt and investment products A RQFII (RMB Qualified Foreign Institutional Investors) quota of 50 billion RMB allows investors to buy Mainland investment products using offshore renminbi Ability to deal in a North American time zone for RMB Asia: 40 % (+22% increase) The Americas: 32 % (+44% increase) Europe: 31 % (+47% increase) Middle East/Africa: 26 % (+83% increase) A recent survey by HSBC showed that 55% of Chinese businesses said they would offer discounts of up to 5% to their trading partners for RMB denominated transactions. HSBC, RMB Survey

Canada as a RMB hub Canada has many advantages as a Renminbi hub: First RMB trading centre in the Americas Currency swap-line agreement between Central Banks of Canada and China Designation of Industrial and Commercial Bank of China (Canada) as the clearing bank in Canada (the first in the Americas) RQFII investor quota of 50 billion RMB that allows access to Chinese capital markets North American time zones that sit between Europe and China Well-developed financial infrastructure Capital markets and risk management expertise Strong and growing economic relationship between Canada and China In June of 2013, EDC issued its first Dim Sum bond. This was the first CNH bond offered by a Canadian issuer. We followed this up with a second Dim Sum bond in October 2014. China shows a great deal of growth potential for our Canadian exporters. We are very pleased with the interest shown by Renminbi investors for the EDC name and we are committed to supporting the long-term development of this market. Susan Love Vice-President & Treasurer Export Development Canada 4X Canadian exports to China have more than quadrupled since 2003 1.5 million Canadians with Chinese ethnic origin (growing to 3 million by 2031) China is Canada s 2 nd largest trading partner 7 Large and growing Chinese population in Canada

FREQUENTLY ASKED QUESTIONS 9 Leveraging Toronto s Strengths Toronto is a major global financial centre that is: The second largest financial centre in North America by employment The hub of Canada s banking system, which is ranked the soundest in the world by the World Economic Forum Home to some of the largest insurance and pension funds in the world Home to TMX the mining finance capital of the world Competitive with low business costs, a skilled workforce and high quality of life What is the difference between renminbi and yuan? Renminbi ( the people s currency ) is the official name of the currency, while yuan is the name of the unit of the currency. RMB is the abbreviation for renminbi. What does CNY/CNH mean? CNY (Chinese Yuan), also known as Onshore RMB, is the legal tender in Mainland China, and is issued by the People s Bank of China. CNH (China Hong Kong Yuan) refers to RMB that is traded outside Mainland China. The term CNH was introduced by the industry to differentiate RMB traded offshore from RMB traded onshore. What does the internationalization of the renminbi mean? Internationalization of the renminbi means making the Chinese currency accessible outside of China. The process of internationalization benefits China by reducing the economy s exposure to foreign currency risk and improving trade. The process began in 2002 with the launch of the QFII program and has expanded considerably in the last couple of years with developments such as the Shanghai Free Trade Zone and the launch of new RMB centres around the globe. What is the significance of the globalization of the renminbi? China is the second largest economy in the world and has gradually become more prominent in international trade. Naturally, the importance of the Chinese currency will grow as well. Why is investing in renminbi attractive? For an investor, the renminbi offers currency diversification and an opportunity to take advantage of the growth to the Chinese economy. In terms of trade finance, renminbi holders can hedge currency risk and negotiate with their Chinese counterparts, as Chinese suppliers prefer to deal directly in renminbi and avoid exchange risk.

FREQUENTLY ASKED QUESTIONS 11 What are Dim Sum bonds? Dim Sum bonds are bonds denominated in renminbi. They are attractive to foreign investors who desire exposure to yuandenominated assets, but are restricted by China s capital controls from investing in domestic Chinese debt. What channels are available to send RMB payments? Each bank has its own channel offering for CNH payment, but channels such as electronic payment, host-to-host or paper instructions are usually available. Can an overseas individual or company open a renminbi account outside of China? Yes, provided banks offer renminbi accounts to retail and corporate customers, opening an account in renminbi is as easy as opening an account in every other currency. Several Canadian institutions provide these services. Are there any restrictions on how long corporates can keep RMB surpluses in their RMB account outside Mainland China? RMB surpluses can be held in offshore RMB accounts for as long as necessary. How can FX risk in CNH be managed? Spot FX, swaps, forwards and options are commonly used to manage FX risk, eliminating the need to use non-deliverable forwards (NDFs). For More Information on RMB In 2013, the TFSA RMB Working Group was formed with a mandate to promote Toronto s capabilities as an offshore RMB hub. The working group was instrumental in initiating and supporting the RMB hub initiative for Canada and Toronto. The working group provides leadership and advocacy on technical, infrastructure and regulatory issues. TFSA RMB Working Group Members of TFSA RMB Working Group include: Bank of Canada* Manulife Financial Bank of China (Canada)** National Bank of Canada 50 billion BMO Financial Group** China Construction Bank CIBC Export Development Canada Ontario Financing Authority* RBC Scotiabank Sun Life Financial A RQFII (RMB Qualified Foreign Institutional Investors) quota of 50 billion RMB allows investors to buy Mainland investment products using offshore renminbi Finance Canada* HSBC Bank Canada** Industrial and Commercial Bank of China (Canada)** Send an email to RMB@tfsa.ca for more information. TD Bank Group TMX Group *observer **co-chairs

The Toronto Financial Services Alliance (TFSA) is a unique public-private partnership dedicated to building Toronto as a global financial services centre. For more information on the TFSA and Toronto s financial services sector, please visit tfsa.ca or call 416-933-6780. design: SOS Design Inc.