The renminbi has not had an easy time in recent months, with China’s ongoing and occasionally fierce debate with the US on the currency’s value, but many countries in Asia are being shown how to embrace Rmb trade settlement with help from Standard Chartered’s international roadshow, writes Michael Turner.

The US has been venting its problems with China’s Rmb exchange rate since it started rising in 2005. But it is only in the past few months that the argument has become so heated that phrases like “currency manipulator” have been used by economists and even the US treasury has felt it necessary to ask China for yuan appreciation, something that Beijing does not feel inclined to do.

In the midst of this trans-Pacific battle, Standard Chartered has recognised business opportunities presented by the strength and widespread use of the Rmb, and has started offering trade settlements to exporters in China in Chinese currency. The bank is also looking to work with the Chinese government and, for the first time ever, has invited the country’s officials and regulators to join them on a roadshow designed to promote the settlement of trade transactions in Rmb among the Association of South East Asian Nations (Asean).

Officials from the Bank of China (BOC), the Shanghai municipal office of financial service and the State Administration of Foreign Exchange joined forces with Standard Chartered to visit Kuala Lumpur on March 9, before moving on to Bangkok for two days from March 10 and finally heading back south to finish in Singapore on March 12. The visits were a rare chance for existing local clients of Standard Chartered to ask Chinese officials questions about the validity of using Rmb to settle trade through the important trade corridors between China and the Asean region.

Over 80 business representatives attended each day-long event, so in terms of numbers, the roadshow was a success. For Standard Chartered, however, the real triumph of the roadshow was not just in the amount of people present, but in having Chinese delegates available for direct questioning, as Jiten Arora, regional head of Southern Asia’s transaction banking for Standard Chartered, tells GTR: “Having Chinese delegates there was a very big help. We saw fantastic interaction between our clients, local regulators in each country and the BOC delegates.

“While it is good for banks to raise Rmb awareness like Standard Chartered has been doing, hearing it directly from delegates of BOC was very effective in addressing attendees’ queries around current regulations as well as future plans and visions pertinent to Rmb trade settlement. This brought transparency to the entire process, which especially helped in Thailand and Malaysia as they were less aware of the developments in Rmb trade settlement than in Singapore. Our previous relationship with BOC meant that they were eager to get involved.”

The roadshow follows the launch last July of BOC’s pilot programme to allow cross-border transactions between the Chinese mainland, Hong Kong and member countries of the Asean region to be closed in Rmb.

One of the aims of such a scheme is to help Chinese exporters increase their international trade business with overseas partners by reducing their foreign exchange risk, with Standard Chartered and HSBC both closing a number of cross-border transactions
in Rmb.

Pushing boundaries

Standard Chartered has a strong relationship with Chinese banks, largely thanks to its involvement in promoting Rmb for trade use in Asia since 2008 and offering Rmb clearing and settlement services to Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines since 2009.

Standard Chartered was also the first international bank in Hong Kong to perform two-way Rmb trade settlement with China and the first bank in China to lend Rmb overseas under the Chinese rules for participation in the cross-border trade settlement scheme, initiated in 2009.

However, Standard Chartered is not the only bank to show an interest in the region’s appetite for resolving trade using the Chinese currency; HSBC launched commercial current accounts in Rmb in Hong Kong, but not outside China, on March 23, 2009. HSBC was the first bank to offer these accounts.

Both HSBC’s and Standard Chartered’s involvement with Rmb deals stems, in part, from their positions as two of the largest international banks in Asia. Claims made by Standard Chartered that the currency would develop trade in the trade corridors between China and Southeast Asia and would give China’s surrounding countries a trade currency that, unlike the US dollar, is both familiar and local, are also significant factors in the bank’s efforts, as Arora explains: “Today, trade with China is being completed in a currency which is neither local to the country exporting nor the country importing, but now with Rmb, companies will have a common currency that is used in these transactions rather than one currency for each leg of the transaction.”

The accomplishments of the Southeast Asian leg of the roadshow have spurred Standard Chartered to begin planning for a Northeast Asian chain of roadshows, due to take place this May. Korea, Hong Kong and Taiwan are all targets for the next series of one-day events and Standard Chartered is expecting an equally successful run of shows, as Arora adds: “The Southeast Asia roadshow was a success partly due to the attendance of senior BOC delegates, who were very excited with the way it went, the turnout of attendees, the kind of questioning they got and the awareness it created, so the content and framework of the Northeast Asian roadshow will be similar. We are looking forward to a similar level of senior involvement and delegate interaction from Northeast Asian markets.”

Qualitative effect

Standard Chartered has not set a definitive number for how much trade it hopes will be completed in Rmb over the next few months as a result of the roadshow; instead the bank is relying on the qualitative effect of allowing Southeast Asian companies to dip their toe into the waters of trading with China’s currency. This softer approach, rather than aggressive marketing, is to allow businesses to get used to the idea of trading with Rmb, before Standard Chartered steps in to “handhold” companies through the process of setting up accounts for the single-currency trade.

“We will continue to follow up on the positive impact that these conferences have generated with our clients by giving each client a better and more detailed understanding of how they can benefit from Rmb and we will handhold them on how they can go about opening up an account for Rmb trade,” says Arora.

The bank’s handholding strategy might be necessary for as long as the ongoing spat with the US continues and the global future of the currency remains unclear. Not even the Chinese government’s attempts to diffuse the situation have worked, such as announcing in March that the country had a trade deficit of US$7.2bn. The rarity and timing of this announcement, made just on the cusp of the US’s possible claims of the country as a currency manipulator, has many economists suspicious. Particularly as a trade deficit hints towards one thing – that China is not purposefully undervaluing its currency.

In the face of this, banks like HSBC and Standard Chartered will continue to promote the use of the currency amongst the countries geographically closest to China, a goal made much more attainable through the cooperation of Chinese delegates.