Among U.S. companies that do business in China, the proportion settling transactions in renminbi (RMB) has nearly doubled in the past year. The United States still lags behind some European nations, but the trend is clearly toward increased use of the Chinese currency. These are the key findings of an HSBC study released last week.
The bank commissioned Nielsen to survey financial decision-makers in 1,304 companies that are either foreign businesses engaged in trade with mainland China, or else companies based in China that do business abroad. More one in five use the RMB for settlement, and that figure rises to more than two in five among organizations over US$500 million in annual revenue. Outside of mainland China (33 percent), Taiwan (38 percent), and Hong Kong (58 percent), the countries in which the largest proportion of respondents said their company settles some cross-border deals in RMB were France (26 percent) and Germany (23 percent).
"There's a competitive advantage to being flexible and being able to denominate transactions in either dollars or renminbi," Brown says. "More French and German companies are willing to deal in renminbi, and if you're competing with them for business, it's a good idea to provide that option. It can open up access to different suppliers and different buyers in China."
Still, U.S.-based companies that are settling transactions in RMB today are fairly early adopters of the practice. "At the moment, we're seeing the more forward-looking treasury staffs saying, 'We see that China's undergoing a gradual liberalization, and we know there's good liquidity in the currency. We want to be ready, to have the mechanics in place for when our firm needs to start settling in renminbi,'" Brown says. "It's important to note that the gradual liberalization of trading rules around business in China is opening up opportunities for U.S. businesses. There's a lot more flexibility around investments, dividends, and pooling of currencies, some of it prompted by the Shanghai Free Trade Zone. That's creating a vast amount of interest among treasury and finance staffs about what will be possible in China 12 months from now."