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Much to gain for firms trading in yuan with China

Companies doing business with China that have switched to using the yuan, or renminbi (people's currency), are reaping financial and relationship benefits, according to a recent survey of 11 markets.

They are also more optimistic about increasing their business in China over the next 12 months.

Over the past 11 years, the yuan has gone from a currency confined within China's borders to the world's seventh most used trade settlement currency and an offshore market with assets of more than 5.3 trillion yuan (Bt27.9 trillion).

The yuan has also gradually played more of a role for Thailand. China is Thailand's biggest trading partner and anecdotal evidence from clients strongly suggests that the yuan is rapidly expanding its role, spurred by China's growing domestic demand and key position at the heart of global supply chains.

Earlier this year, HSBC asked market research company Nielsen to canvass more than 1,300 companies doing business with China.

More than three-quarters of the companies using the yuan said it had given them both financial and business relationship benefits.

It is getting easier and cheaper to access yuan products, and for corporations with both operations and sales in China, using the yuan can reduce the level and cost of currency risk.

And although many Chinese companies are completely at ease transacting in foreign currencies, an overseas client or supplier's willingness to shift to yuan settlement is frequently seen as a sign of commitment.

The move into the yuan is being led by larger corporations - 42 per cent of the respondents with turnover of more than US$500 million said they carried out at least some of their operations in yuan, compared to only 15 per cent of those with turnover of $3 million-$5 million.

That split is at least in part because the larger the company and the broader its reach, the easier it is to reap the benefits of the increasingly sophisticated cross-border payments and cash management solutions - sweeping, netting and pooling for example - that are becoming possible as the People's Bank of China progressively streamlines the regulatory architecture.

China is still the world's most dynamic major economy, and yuan users seem to be more optimistic about tapping into that growth. About 69 per cent of yuan users expect to increase their cross-border business with China over the next 12 months, compared to 56 per cent of non-yuan users.

The survey results indicate that the extraordinary growth of yuan usage is likely to be a long-term phenomenon.

About 59 per cent of companies already using the yuan forecast that their cross-border use of the yuan would increase, and a third of the non-users said they intend to start using the currency within five years.

The market has ample room for expansion. Only 22 per cent of the companies surveyed said they use yuan, and just 18 per cent of China's border trade was settled in yuan last year. The 11 key markets surveyed were China, Hong Kong, Taiwan, Singapore, Australia, the UK, the US, Germany, France, Canada and the UAE.

Noel Quinn is HSBC's head of commercial banking in Asia-Pacific


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