My thoughts on Reminbi as a currency for settlement of international trades

I recently came across  a Chinese corporation which intended to purchase certain canmaking machines and parts from US  manufacturers for a sum of around US$300,000. The Chinese buyer made it a condition that the payment was to be made in Renminbi (RMB), the Chinese currency.

There is an increasing trend that the Chinese want to settle their foreign purchases by RMB. It seems there is a certain agenda, among the Chinese corporations, to do so in line with the country’s policy to become less relied on the US dollar.  It is a well known fact that China is the largest foreign holder of US government treasuries and bonds. The holdings are continuing to grow despite China from time to time voiced its concern over the safety of its US assets. The irony is that the Hong Kong dollars were and is pegged to the US dollar. Since 1983, the Hong Kong dollar exchange rate has been held to one US dollar to 7.8 Hong Kong dollar, with minimal fluctuations. The Hong Kong government holds that this linked exchange policy will not be changed whatsoever. It indicates that Hong Kong has great confidence in the US dollar. I think there is something that Hong Kong knows, which China does not, or vice versa.

It is not surprising that China wants its currency to play a bigger role in international trades as it is the largest exporter in the world and one of the largest importers in the world. The problem is that the there are a lot of rules and regulation governing the remittance of RMB into and out of the country.

In passing, I would like to mention one of my recent bad experiences in dealing with RMB. In the beginning of this year, one of my US clients intended to purchase certain steel pipes from China. The relevant contract was signed between the parties and the US buyer remitted a certain sum of deposit to the Chinese supplier in US dollar.  However, the Chinese local bank refused to convert the dollars into RMB as the local company did not have a US dollar account. In order for it to receive the RMB it had to attain the status of a foreign trading corporation, which required the approval of China Foreign Exchange Bureau. At the same time the US supplier could not arrange to remit RMB to China as RMB was not available at its US bank. At the end of the day, the deal was called off and the deposit was returned to the US supplier. As can be seen what appeared to be a simple transaction could be  made complicated or impossible due to the lack of understanding of the China currency situations.

Returning to the subject on RMB as a settlement currency, personally, I do not mind receiving payments in RMB as the currency  is one of the strongest in the world and with the country’s prevailing strong economy and as a primarily exporting country, RMB is likely to continue to be strong. Further, in Hong Kong,  there are a lot of channels to do the RMB exchanges. It is so only because Hong Kong has a strong pool of RMB and a close tie with China.  There is an available market, in Hong Kong,  for the buying and selling of RMB. As I said before there are many rules and regulations with regard to the exchanges of RMB into other currencies. It is difficult for foreign companies to understand or to take the risk

With a view to solving these issues, at end of June 2009, the monetary authorities of China and Hong Kong signed a pact, which came into force on 1st July 2009, to make Hong Kong officially (my comments added) the first RMB exchange centre outside China. Under the pact companies in Hong Kong are allowed to settle trades with their China counterparts in RMB in five major China cities, namely, Shenzhen, Guangzhou, Zhuhai, Dongguan and Shanghai. It should be mentioned only a number of authorised companies within those five cities are allowed to engage in such deals. It is clear only a handful of foreign companies will be benefited. Although it is meant to be a test scheme, there is no time schedule for extending the scheme to other cities.

In the meantime, I think foreign corporations will likely see their China counterparts to press for paying their purchases in RMB. Yet it would be a long time before RMB could turn into a freely convertible currencies. It is a lesser problem if a foreign corporation has  manufacturing facilities in China as it could use the RMB received to meet expenses of its local operations. As for a foreign company engaging in one way trade, it will have to find solutions as to how to repatriate their moneys back home.


Blogs for business in China, does it work?

As a trader actively involved in the dealings between China companies and their counterparts for the rest of the world (ROW), I need a cost effective platform to bring the two worlds together. Entirely for the sake of ease of reference and with no political agenda at all, when I mention China in the context of this blog I am referring to Mainland China. Technically, Hong Kong, Macau and Taiwan are part of China and they fall within the unofficial term,  Greater China. Again, when I refer to China and ROW or the two worlds, one should not interpret them literally that China belongs to another world. With respect to my mother country, when it comes to doing business, China is another world. The country is unique because of, among other things, its immense manufacturing and consuming powers, controlled currency, culture and political system.

Returning to my need of an effective platform, a specially designed website should be ideal. Think about those niceties, such as icons and photos whereby I could exhibit my wares and forums for my followers, if any, to discuss interesting topics . Moreover, I could put up a bunch of Google Adsense banners to make some extra incomes.  However, the problem is that for a start-up business, I am operating on a shoestring budget, I simply cannot afford to do that, yet.

The next best thing would be to do my marketing through social medias, or simply known as blogs. Many people know that blogs are free and efficient and it can work or look as good as a professionally designed website (look at my blog :). To show how cost effective “blogs for business” could be, I would like to  tell one of my recent experiences. In about the middle of July this year, I started twitting at Twitter. At the time, I loosely put up some of the CM products of a China supplier at my tweets for trial basis. Let’s call this supplier “my client”. Within 24 hours I was “followed” by an editor of an international CM web magazine. One thing led to another, the editor invited my client to do a profile at their magazine. After an interview and subsequent exchanges all through e-mails, an article about the client’s businesses, products and future plans was published in the magazine’s August issue. It took only about 10 days to do that. The client was impressed with the professionalism and efficiency that I showed in handling the matter, which I have to thank Twitter and the said editor.  Needless to say I have built a good rapport with the client and hopefully it would translate into dollars and cents in the near future..

Prior to that I asked my client to comment on my tweets at the Twitter. Unfortunately, the client could not do it as it had no access to Twitter.  The reason is that Twitter was and still is blocked in China. So is WordPress, Google and etc.. So if I want to reach my Chinese clients through these popular blogs sites, it would be hopeless. I don’t think there is a blog site which crosses both worlds. It is not a language problem. The English language level of some Mainland Chinese, at least for those I deal with in business, is unusually high. They like to talk with and write to foreigners in English. Further, The Chinese love to blog as much as their overseas counterparts. However,  they have their own blog systems, such as QQ, Sina. I think WordPress and Google blogspots were at one time available in China, but when they got too political they were barred from China.

I don’t think there is a quick solution to this conundrum. What I intend to do is to take a shot gun approach, which is to have  a couple of blogs in China and at the same time doing the same through WordPress and Google for my international clients and see how things pan out.

Dear readers, if you have any good ideas please let me know. I would be grateful.