Summary

• The Chinese mainland announced the pilot RMB Trade Settlement Scheme in April 2009, which is a small but one of the important steps of “internationalising” the RMB. Under the scheme, eligible enterprises in selected mainland cities and regions will be allowed to settle in RMB in trade with their corresponding enterprises in Hong Kong and other selected locations outside the Chinese mainland.

• With China’s fast-expanding economy and growing external trade, the RMB will ultimately acquire an international status truly reflective of its economic weight and trade scale, even though it at present remains largely a non-convertible currency. The RMB’s internationalisation will likely follow a three-stage process (i.e. when it is used in pricing and settlement of trade and financial transactions; use as an international investment vehicle; and use as an international reserve currency), especially after the demand for RMB has hit certain critical mass in external trade and financial transactions.

• Under the pilot RMB settlement scheme, eligible Hong Kong enterprises will benefit from having an option to quote and settle in RMB their Hong Kong-mainland trade, allowing them to better manage currency risks and reduce trade settlement costs. Hong Kong banks will have a new growth area aside from personal RMB services, where new products and services can be developed.

• As for Hong Kong, the pilot RMB settlement scheme will further strengthen it as an international financial centre, by far the largest RMB centre outside the mainland with an increasing offer of RMB products and services, including the issue of RMB bonds. It is expected that Hong Kong will have a continual role to play in the RMB’s internationalisation process, and considerable opportunities for developing additional RMB businesses over the medium-to-long term.

Pilot Renminbi Trade Settlement Plan

The Chinese government announced in April 2009 the scheme of allowing settlement in Renminbi (RMB) in the trade of Shanghai, Shenzhen, Guangzhou, Zhuhai and Dongguan with Hong Kong and Macau, and in the trade of Yunnan and Guangxi with ASEAN¹ on a pilot basis.

Although the Chinese government has not yet announced the details of the regulatory and operational framework of the pilot scheme, eligible mainland enterprises in the selected regions are expected to be able to settle trade in RMB shortly with their corresponding enterprises outside the Chinese mainland under this Pilot RMB Trade Settlement Scheme (PRTSS), while the RMB presently remains a currency that is not fully convertible and is circulating predominantly on the Chinese mainland.

In principle, PRTSS will provide eligible enterprises² engaged in trade between Hong Kong and the Chinese mainland with a new option to quote as well as to settle their trade in RMB based on their needs, which otherwise has been settled mostly in US dollar. Measures that will likely be implemented to facilitate the pilot scheme would include:

First, eligible enterprises in Hong Kong will be allowed to open “corporate RMB accounts” with selected Hong Kong banks for settling trade with eligible enterprises on the Chinese mainland. They will be allowed to deposit RMB into their own corporate banking accounts.

Second, eligible enterprises will be allowed to transfer RMB to other selected companies’ accounts on the Chinese mainland for trade-related transactions.

PRTSS: an expansion of RMB business scope for Hong Kong to benefit both enterprises and banks in Hong Kong

Following the first-phase introduction in 2004 of four types of pilot personal RMB business in Hong Kong, covering RMB deposits, remittances, exchanges and cards, there have been enhancements in the allowed business scope for Hong Kong banks, with RMB cheques for Hong Kong residents added, and limits for credit card transactions and transfers raised. Besides, designated merchants³ in selected business sectors in Hong Kong are allowed to open RMB cash deposit accounts and to exchange RMB deposits one-way into Hong Kong dollars.

Under the current RMB banking business in Hong Kong, personal RMB account holders are allowed to remit RMB 80,000 per day to the account under the same name on the mainland. Contrastingly, for trade to be effectively settled under PRTSS, the amount of RMB that would be allowed in a mainland-Hong Kong trade, or the RMB amount allowed for settlement by an eligible enterprise in a day, should be sufficiently large. Preferably, there would not be a cap for the amount allowed for daily trade settlement in RMB.

¹ ASEAN, the Association of Southeast Asian Nations, consists of the following 10 countries, namely, Singapore, Indonesia, Malaysia, Philippines, Thailand, Vietnam, Cambodia, Laos, Brunei and Myanmar.

² Enterprises that will be allowed to participate into the pilot RMB trade settlement scheme will be subject to the regulations to be announced by the Chinese mainland.

³ Designated merchants eligible for RMB business include those engaged in the provision of retail, catering, accommodation, transportation, telecommunication, medical and educational services.

This new report is available at HKTDC's Retail Outlets. It can also be purchased through the HKTDC Book Shop section in the HKTDC's trade portal: www.hktdc.com.