Non-Chinese companies warm to renminbi

Non-Chinese companies are increasingly using the renminbi as an international currency and expect to more than double the volume of transactions in the next five years, despite several obstacles, according to research.

The renminbi is the second most-used currency for European and US carmakers such as Volkswagen, Daimler, Ford and General Motors, which have big markets in China.

But a survey of 150 senior executives from multinational companies found that more than half of non-Chinese companies had used the renminbi for payments outside mainland China, mainly to benefit from lower transaction and funding costs.

China is shaking up the US-dominated international finance system by inviting western countries such as the UK to join its Asia Infrastructure Investment Bank, to the dismay of Washington.

The renminbi was ranked the fifth most-used global currency, with payments doubling in 2014 on the previous year, albeit with a modest 2.2 per cent of the world's payments, and well behind the dollar and the euro. It has since slipped back to seventh.

But the renminbi's global standing will be enhanced in October if the International Monetary Fund decides to accord it special drawing rights, thereby giving it automatic status as an official reserve currency - although it does not meet IMF conditions on convertibility.

The study by the Economist Intelligence Unit for the law firm Allen & Overy highlights how multinational companies in the US, Europe and Asia-Pacific are expecting to increase their handling of transactions in the renminbi.

Nearly two-thirds of those surveyed who already used the renminbi said they expected the volume of cross-border transactions to more than double over the rest of the decade.

In the short term, those volumes will grow only modestly, the survey found. Similar research by HSBC found fewer global companies planning to use the renminbi in cross-border transactions compared with last year.

Respondents to the EIU were worried about their companies' lack of understanding about how to conduct renminbi transactions, lack of renminbi liquidity, and regulatory issues such as the delays in rolling out China's clearing and settlement system.

But executives said their use of the renminbi was enabling them to invest further in mainland China, expand their Chinese operations globally, reconfigure their global and regional supply chains and have greater flexibility over salaries and benefits.

Shanghai's free trade zone is named as the most attractive offshore centre outside Hong Kong for managing renminbi liquidity, followed by Singapore, Luxembourg and London.

Jane Jiang, a partner at Allen & Overy, said it might be too early for the IMF to award SDR status to the renminbi. But she added that regulatory changes were coming "thick and fast" in China, even though scepticism remained about China's willingness to loosen control of its exchange rate.

"The People's Bank of China has been managing the gradual opening of the exchange rate for a while now, not without criticism from others," said Ms Jiang.

"At the end they will have to lose that control. This is part of China's internationalisation."

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