V. P. ANDREEV, Candidate of Economic Sciences
Vice-President of JSC Bank ZENIT
Member of the Commission for the preparation of regular meetings of the Heads of Government of Russia and China
Keywords yuan, world reserve currency
In January 2011, Chinese companies and banks participating in the RMB settlement program for cross-border trade were allowed to use the RMB also for direct investment abroad, for setting up joint ventures, mergers and acquisitions, and for buying shares in the share capital of foreign companies.
In addition, they were given the opportunity to repatriate the profits from such investments back to China in yuan, as well as to lend to Chinese companies for similar direct investments abroad. At the same time, in January 2011, residents of the city of Wenzhou (prov. Zhejiang) for the first time in China, it was allowed to invest abroad as individuals. As a result, China's total investment in RMB abroad reached $ 20.15 billion in 2011. RMB 1.
FOREIGN DIRECT INVESTMENT IN RMB
In February 2011, the State Administration of Foreign Exchange Control of the People's Republic of China announced that, in order to create more favorable conditions for hedging currency risks in foreign trade, from April 2011, China will start trading options* in RMB so-called European style, i.e. options that can be redeemed only on one specified date (expiration date, execution date, repayment date). According to a report in the China Daily newspaper on April 1, 2011, several major Chinese and foreign banks, including Bank of China, ICBC and Deutsche Bank, entered into the first such option deals for a period of one year. At the initial stage, banks and companies are allowed to enter into purchase option contracts. This permission applied only to those companies that are engaged in trading in real goods/services and real investments, and not for speculative purposes. Banks involved in this business are required to have at least 3 years of experience in trading currency forwards**.
As part of measures to improve the RMB circulation infrastructure in the foreign market, another important event was the establishment of a RMB Settlement Center in Singapore on March 11, 2011, based on the Singapore branch of the Bank of China for Commerce and Industry (BIC). Wang Lili, Executive Director and Senior Vice President of TPBC, said that her bank intends to use the advantages of Singapore as an international trade and financial center and turn its Singapore branch into the "ICBC Group's Renminbi Processing Center for Southeast Asia". According to her, the total volume of payments in yuan for cross-border trade since the start of the project, accounted for by the TPBC group, exceeds 150 billion yuan. yuan ($22.8 billion).
On the same day that the Bank of Commerce and Industry of China announced the establishment of its regional RMB settlement center in Singapore, Singapore's second-largest bank, Oversea-Chinese Banking Corporation (OSVS), launched a program to sell two RMB-denominated deposit products to private clients. It was followed by other major Singapore banks, Development Bank of Singapore (DBS) and United Overseas Bank (UOB), as well as the Singapore branch of HSBC. All of them announced their immediate plans to provide their depositors with other RMB-denominated financial instruments, including access to the Hong Kong RMB-denominated bond market. It should be emphasized that all these Singapore banks have branches in Hong Kong that are Authorized Participating Authorized Institutions (AIs) payment systems in RMB through the Bank of China (Hong Kong). It is also important that Singapore is among the countries with which the People's Bank of China (PBOC) has a $ 150 billion mutual currency swap agreement with its financial regulator. yuan ($22.8 billion).
In addition, the Bank of China's New York branch has started opening bank accounts in the South China Sea.-
Ending. For the beginning, see: Asia and Africa Today, 2012, No. 10.
* Option trading involves working with contracts that give a fixed profit with strictly limited risks determined by the trader himself (approx. ed.).
** Non-deliverable forward - a transaction similar to a currency forward transaction, in accordance with which, however, the corresponding nominal amounts are not exchanged in the agreed currencies. Instead, the difference between the nominal liability calculated at the fixed exchange rate agreed upon by the parties on the transaction date and the nominal liability calculated at the reference exchange rate on the fixing date is paid (editor's note).
the owners of which got the opportunity to buy yuan with a daily limit of $4 thousand in equivalent, but not more than $20 thousand. per year. Individuals can transfer yuan from the United States to China, Hong Kong, and Macau, but the daily limit is 80,000 yuan, and the sender and recipient of the payment must be the same person. If the sender wants to transfer yuan to friends or relatives, they must first inform the Bank of China (New York) of the recipient's identification number in China. At the same time, however, the bank's website states that operations with cash yuan are not carried out yet.
Thus, using Hong Kong as the main base and testing ground for all innovations with offshore circulation of the yuan, China took the first steps to distribute the proven instruments to other foreign platforms - New York, London, Singapore, Moscow (in December 2010, the Moscow Interbank Currency Exchange (MICEX) began trading in the ruble/ruble pairThe need for RMB-denominated financing for global trade and direct investment is expected to increase significantly in the coming years.
Speaking at the China Development Forum in 2011, Chinese Commerce Minister Chen Demi said that China will continue its policy of "openness"in the next five years in order to strengthen China's involvement in the global economy and give a new impetus to global development. 2
USING RMB PURCHASED ABROAD FOR DIRECT INVESTMENT IN CHINA ITSELF
The next important decision for further internationalization of the yuan was the rules published in October 2011 by the People's Bank of China, which regulate the use by Chinese and foreign investors of yuan legally acquired abroad (offshore yuan) for direct investment in projects in mainland China.3 According to these rules, any such project worth more than 300 million yuan must be approved by the Ministry of Commerce of the People's Republic of China4. As a result, in 2011, the total volume of foreign direct investment in RMB in mainland China* exceeded 90.72 billion yuan. RMB 5.
Another step towards opening up the domestic Chinese market to offshore yuan was the rules of the long-awaited RMB Qualified Foreign Institutional Investors (RQFII) pilot program published on December 16, 2011.
This program allows qualified investors to invest RMB funds raised in Hong Kong in the mainland Chinese securities market within the permitted quota, which at the end of 2011 was approximately $ 20 billion. RMB ($3.2 billion)6. Only the Hong Kong-based subsidiaries of 21 financial companies of the People's Republic of China were allowed by the Chinese Securities Commission to use funds in offshore yuan for investment in the securities market of mainland China, and the above quota was divided between them.7 At the same time, in order to control risks, at least 80% of the attracted offshore yuan was allowed to be invested in fixed income securities (sovereign and corporate bonds), and investments in stocks and investment funds were limited to 20% .8 In early April 2012, this quota was increased to 50 billion rubles. In the future, the Chinese Securities Commission plans to allow participants in the RQFII program to issue shares of exchange-traded funds (ETFs)9, i.e. index funds whose shares are traded on the stock exchange.
According to HSBC analysts, within 3 to 5 years (i.e., by 2013-2015), more than 50% of China's trade turnover, mainly with developing countries, will be serviced by payments in yuan (in 2010-only about 2%, in 2011-already more than 9.5%), and, thus, the volume of international trade settlements in yuan will reach $2 trillion (in 2011 - about $349 billion), which will make the yuan the third currency used in international trade.10 Approximately the same trend is predicted by J. P. Morgan analysts. For example, by the end of January 2012, RMB deposit account balances in Hong Kong totaled $ 576 billion. yuan ($91.43 billion), which is about 2.1% less than at the end of 2011. At the same time, the total amount of deposits in foreign currency increased by 0.9%. The total amount of RMB payments in Hong Kong for cross-border trade settlements in January 2012 was $ 156.4 billion. RMB (December 2011 -239 billion) RMB)11. J. P. Morgan analysts estimate that by 2015, the amount of offshore yuan (CNH) held in Hong Kong accounts from trading revenues could be between 2.6 and 3.5 trillion yuan ($395 billion to $530 billion) .12
Theoretical forecasts of the development of the trend towards an increase in the volume of international trade settlements in yuan are confirmed by practical actions. Since June 1, 2012, direct trading of the yuan/yen currency pair has started simultaneously on the Chinese Interbank Currency Exchange in Shanghai and on the Tokyo Currency Exchange. Prior to this, such trading on the Shanghai Stock Exchange was conducted only in the yuan/US dollar pair, and such currencies as the euro, pound sterling, Hong Kong dollar, yen, Malaysian ringgit, Russian ruble, Australian and Canadian dollars were traded through the US dollar. According to the plan of the leaders of China and Japan, this measure should lead to a long-term-
* The term "mainland China" or "mainland China" now refers to the People's Republic of China without Hong Kong, Macao and Taiwan.
bilateral trade increased significantly, reaching $345 billion in 201113.
The existing growth rates of international payments in RMB have revealed the "bottlenecks" of the current CNAPS (China National Advanced Payment System) payment system in China, as a result of which the cost of international transfers for settlements in RMB is higher than the same transfers in other currencies (US dollars, euros, etc.). The NBK is working to bring the existing payment system in line with modern requirements. According to reports, the second-generation SNAPS system should be launched at the end of 2012, which will allow instant interbank payments in yuan within the country and improve the conduct of currency exchange transactions in real time. In addition, the prospects for further "internationalization" of the national currency forced the PBOC to start developing a fundamentally new payment system, which was called CIPS (China International Payment System). This system, which is expected to be put into operation within one to two years, will be compatible with the SWIFT system and will directly connect Chinese and foreign participants in international payments in yuan14, which will allow us to take another step towards turning the yuan into a full-fledged global currency.
This work is being carried out simultaneously with measures to remove outdated administrative barriers to China's foreign trade and simplify currency control procedures. According to the State Administration of Currency Control of the People's Republic of China, since August 1, 2012, the experiment has been extended to the whole country, which since December 2011 has been carried out in a trial order in 8 administrative divisions of China - the provinces of Jiangsu, Shandong, Hubei, Zhejiang (without Ningbo) and Fujian (without Xiamen), as well as in the cities of Dalian and Qingdao. The experiment consists in simplifying the procedures for controlling foreign exchange operations of trading companies, namely: the previously existing system for confirming each currency payment or receiving foreign exchange earnings was canceled. In addition, the preparation of export declarations and receipt of VAT refunds for export has been simplified, and the rapid exchange of information between the State Administration of Currency Control of the People's Republic of China, Tax and Customs services has become possible.15
In addition, in July 2012, the State Council of the People's Republic of China approved the launch of a new pilot project designed to work out the procedures for converting yuan on capital accounts. The most important new feature of this project, which is being implemented in the Qianhai Bay Economic zone near Shenzhen, called Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, was the permission of Hong Kong financial institutions to issue loans in offshore yuan to residents of this economic zone, who are very profitable for this innovation, since the lending rates in offshore yuan are still significant lower (the annual rate of lending in offshore yuan is now approximately 4.5% per annum, while the discount rate of the People's Bank of China is 6.31% per annum)16.
"INTERNATIONALIZATION" OF THE YUAN AND ECONOMIC RELATIONS BETWEEN CHINA AND RUSSIA
The prospects for the" internationalization " of the yuan make it extremely important for Russian-Chinese trade and economic cooperation. China has become Russia's main foreign trade partner, although the growth of mutual trade in recent years has not been uniform. In 2009, under the influence of the global financial and economic crisis, the bilateral trade turnover decreased by 32% compared to the previous year and amounted to $38.8 billion. Then, in 2010, it grew by 43% compared to 2009 and amounted to $55.5 billion. According to the Russian trade representative in China, in 2011 the Russian-Chinese trade turnover increased by 42.7% compared to 2010 and exceeded $79 billion, 17 which is significantly lower than the volume of China's trade with Europe and the United States. According to Sergey Razov, Russia's Ambassador to China, "the growth rate was insufficient to achieve the goal of bringing the bilateral trade turnover between the two countries to $100 billion by 2015 and to $200 billion by 2020." 18
In November 2010, the heads of government of Russia and China agreed on the preferential use of the national currencies of the ruble and yuan in bilateral trade. At the same time, trading in the yuan/ruble pair began on the Shanghai Currency Exchange. Approximately a month later, on December 15, 2010, the Moscow Interbank Currency Exchange (MICEX) launched trading in the yuan/ruble currency pair with "today" calculations and on the terms of 100% pre-deposit of funds. The MICEX thus became the first organized exchange-traded renminbi market outside of China and Hong Kong.
As I. Maricha, MICEX Vice President, said in March 2012 at the conference " Financial Cooperation between Russia and China: mutual Expansion continues...", in 2011 the volume of transactions of Russian banks with Chinese yuan exceeded $1 billion: from $78 million per month in the first quarter to $129 million in the fourth quarter. The average daily trading volume in 2011 was 4.1 million yuan, compared to 7.9 million yuan in 2012. Russian banks ' operations with the yuan are dominated by yuan-dollar transactions, accounting for 2/3 of the total volume, while yuan-ruble transactions account for 1/3 of the total volume. At the same time, spot transactions (60% of the volume), as well as swap transactions (20%) and futures transactions (20%) are conducted in the Russian interbank market with the yuan.
In general, although the volume of trading on the MICEX is gradually increasing, it is still very small, and the Russian OTC interbank currency market is still growing.-
The foreign exchange market adds very little to this volume, as Russian-Chinese trade is still settled primarily in US dollars.
STILL, PAYMENTS ARE MADE IN DOLLARS
This state of affairs is explained by the following factors. First, the low demand from Russian bank customers is due, in particular, to the fact that, as already mentioned above, only in December 2010 a sufficiently large number of Chinese enterprises that have completed registration with the tax authorities for receiving VAT refunds received the right to receive export earnings in yuan. Only since March 2012, all Chinese enterprises with an export-import license have been granted this right.
Secondly, although Chinese exporters are objectively interested in switching to RMB payments, since they save on revenue conversion costs and simplify its administration, nevertheless, according to information received from Russian importing companies, their Chinese counterparties are not yet very eager to switch to RMB payments, since so far they have not been able to make payments in RMB terms. There are bureaucratic and technical difficulties with the return of export VAT on contracts concluded in yuan.
Third, Russian importing clients using trade finance instruments continue to use the US dollar in their calculations, as the cost of trade finance in yuan pegged to SHIBOR is higher than in US dollars (LIBOR+), which is explained by the People's Bank of China's tough measures to combat inflation. A significant difference in financing rates is often not compensated for by the possibility of obtaining a lower price for goods in yuan compared to dollars. Therefore, customers who use trade finance tools in their business will not switch to payments in yuan as long as this difference persists.
These issues were discussed in detail at the next meeting of the Russian-Chinese Sub-Commission on Financial Cooperation, held in June 2012 in Kunming (China). Participants of the meeting, representatives of Russian and Chinese banks, noted that as the internal technical and bureaucratic problems related to VAT refunds for exports are resolved, Chinese exporters will undoubtedly switch to receiving payment for their goods in yuan. Accordingly, the demand for the yuan from Russian importers will also increase, which should lead to an increase in the volume of trading in the yuan/ruble pair on the Russian foreign exchange market, especially since the last obstacles to the wider use of national currencies in Russian-Chinese trade were removed back in June 2011, when the Bank of Russia and the People's Bank of China signed an agreement that allowed payments between the two countries to be made not only in freely convertible currency, but also in the national currencies of the two countries. Infrastructure to meet future increased demand will also be ready. At the end of 2011, at the Bank of China seminar on cross-border settlements in RMB, MICEX Vice President I. V. Yushchenko presented the following issues: Marich said that in 2012 MICEX plans to expand trading in the yuan / ruble pair with new options and instruments, launching trading in the ruble / yuan pair with "tomorrow" calculations, increasing the trading time by an hour, switching to partial pre-deposit of funds and launching a currency swap 19.
Chinese exporters include in their" dollar " prices expenses related to the conversion of US dollars to yuan, operating expenses for receiving foreign exchange earnings, as well as currency risks related to the volatility of the US dollar and the appreciation of the yuan against the US dollar. And if this is the case, then when switching to payments in yuan, Russian importing companies have a reasonable opportunity to seek better contractual conditions from their counterparties, including lower prices. For example, the management of the Sportmaster group of companies that place orders for their products in Chinese factories, when entering into contracts with payment in US dollars, because of the need to insure currency risks, Chinese manufacturers inflate selling prices by about 2-4%. In turn, analysts at British banks Barclay's and Standard Chartered estimate the savings of British clothing retailers when switching to payments in yuan at about 8%20.
Thus, for Russian companies and enterprises with counterparties in China, Hong Kong and Macao, the ability to use yuan for their settlements with counterparties under foreign trade contracts creates good conditions for more efficient business and its further growth.
1 China Daily, 01.03.2012.
2 China Daily, 21.03.2011 .
3 China Daily, 14.10.2011.
4 China Daily, 15.12.2011.
5 China Daily, 01.03.2012.
6 China Daily, 16.01.2012.
7 China Daily, 03.03.2012.
8 China Daily, 17.12.2011.
9 China Daily, 04.04.2012.
10 HSBC report: The rise of a red back, November 2010.
11 Press Release of the Hong Kong Financial Authority dated 29.02.2012 - http://www.hkma.gov.hk/eng/key-information/press-releases/2012/20120229 -5. shtml
12 J.P.Morgan Securities (Asia Pacific) Ltd.: The CNH market, January 26th, 2011.
13 JETRO Survey: Analysis of Japan-China Trade in 2011 and Outlook for 2012.
14 China Daily, 31.03.2012, 12.04.2012.
15 China Daily, 30.06.2012.
16 China Daily, 04.07.2012, 05.07.2012.
17 http://www.ria.ru/interview/20120207/558539131.html. According to China's customs statistics, the bilateral trade turnover amounted to $79.26 billion, including China's exports - $38.9 billion, and imports - $40.35 billion. -http://www.e-to-china.com/customsinfo/latestdata/2012/0110/99626.html
18 China Daily, 23.12.2011.
19 Kommersant, N 230 (4771), 08.12.2011.
20 China Daily, 13.01.2012.
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