HSBC Bank Malta’s initiative to launch direct trade settlement services in Chinese renminbi recently is an important development for members of the local community who are increasingly looking to do business with China.
The trade facilitation facility comes in the wake of a double taxation treaty signed with China in November and a memorandum of understanding between the regulators – the China Security Regulatory Commission and the Malta Financial Services Authority – last year. A similar agreement is currently under negotiation between the China Development Bank and Malta’s Central Bank.
At the official launch to a gathering on the Valletta Waterfront last Friday, HSBC Bank Malta chief executive officer Alan Richards described the new product as a “significant opportunity for business customers”.
HSBC is the first and only local bank to offer the facility through which Maltese and Chinese firms will face lower foreign exchange transaction costs and currency fluctuation risks. It will also enable the negotiation of better terms of trade.
Maltese companies trading with Chinese partners will be able to open accounts in the Chinese currency to settle trade transactions directly through transfers, letters of credit, guarantees, and other instruments.
Mr Richards said Malta had now joined more than 40 markets where HSBC has been a pioneer in facilitating RMB trade settlements. With its roots in the region and a presence in China for 146 years, HSBC is one of the most recognisable foreign banks in the country. Last November, it became the first international bank to finalise an RMB trade settlement across six continents. It was also the first international bank to trade offshore RMB foreign exchange options and the first to execute RMB interest rate swaps in Hong Kong.
As the world’s largest exporter, the second largest economy, and the fifth largest source of foreign direct investment globally, China is an exciting prospect to firms seeking growth and internationalisation.
HSBC predicts that in just five years, around 30 per cent of China’s international trade will be conducted in RMB. By 2015, the currency is expected to be among the world’s top three with the US dollar and the euro, if it becomes fully convertible. Asia and the emerging markets will lead RMB trade and investment. HSBC forecasts the value of trade settlements in RMB to reach around US$2 trillion by 2015.
Chinese Ambassador Zhang Keyuan underlined the currency’s important role, and addressed what he called some politicians’ view of it being “rate-manipulated”.
“The RMB for sure will be a fully convertible world currency,” he said. “The Chinese government always presses ahead with the reform of the RMB exchange rate regime in line with the principle of independent decision-making, gradual progress and controllability, as it serves the common interests of China and the world at large, and contributes to global economic stability and sustainable development. China has been making step-by-step, but assured, changes in its economic reform, including monetary policies.”
HSBC Bank in China has found that eight in 10 companies from mainland China which do not settle trade with cross-border partners in RMB plan to do so. The data emerged from a study among 1,300 companies in 18 Chinese cities.
The RMB market has grown to turn over US$3 billion a day from virtually nothing in just 15 months, HSBC said. In the first three months this year, RMB trade settlements were 15 per cent higher than the same period last year, and 20 times more than in 2009.
According to Mr Zhang trade volume has reached €98.6 million in the first five months this year, with Maltese exports to China increasing to €30.4 million.
Finance Minister Tonio Fenech welcomed HSBC’s initiative, saying the authorities were working hard to create a business environment that would facilitate internationalisation, even beyond the EU’s new frameworks.