It wasn’t scientific, but Lori Clos Fisher‘s informal poll proved her point.
While most members of her audience raised their hands to show they were buying or selling in China, only a handful were using the country’s currency in their trade or investment deals there.
“(Settling transactions in Chinese yuan) is a very important business issue that U.S. companies are not using effectively enough yet,” said Ms. Fisher, managing director for global corporate banking at Bank of America in Atlanta. “It is relatively new but it’s growing exponentially fast.”
Experts in the field explored the trend on a finance panel during the “Hong Kong: America’s Bridge to Asian Growth” seminar at the Carter Center Oct. 4.
Foreigners can set up yuan (also known as renminbi) bank accounts in Hong Kong to use the currency for their mainland operations. Since 2007, Chinese institutions and now even foreign companies have been permitted to issue so-called “dim sum” bonds in yuan for their Chinese operations. Atlanta-based United Parcel Service Inc. is among the companies that have used the strategy.
Though Hong Kong is a part of China, the former British colony retains its own currency, the Hong Kong dollar. Chinese currency raised in Hong Kong is classified as “offshore” renminbi.
Few American firms have really maximized the new opportunities presented by China’s currency liberalization, Ms. Fisher said. Broadly, that’s a problem, but it means that those who take advantage of local currency options are all the more competitive versus their foreign counterparts because they’re reducing partners’ foreign-exchange exposure.
“You can be a much more attractive buyer or seller if you’re willing to take that risk away from your business partner,” Ms. Fisher said.
Henry Yu, managing director for Fifth-Third Bank and the moderator of the panel, who has worked extensively in China on renminbi internationalization, said Americans have been fearful and “lukewarm” toward the process.
Still, the overall use of yuan in trade and fundraising has skyrocketed, said He Guangbei, CEO of Bank of China Hong Kong Ltd., which is designated as the offshore renminbi clearinghouse through which other “participating banks” register to offer renminbi accounts.
About 2 trillion offshore renminbi (some $300 billion) was used in trade settlement last year, accounting for about 8 percent of China’s total trade. During the first half of 2012, that number grew by 52 percent, Mr. He said.
Some $110 billion worth of cross-border investments, ($90 billion into China and $20 billion outbound) were also transacted in the currency, he added.
“The RMB journey is not just Hong Kong’s journey. It’s the journey that connects China with international entities,” Mr. He said.
That fits well with the advantages of Hong Kong, which is the gateway for outside firms into China and where Chinese firms begin their forays overseas, said Margaret Fong, deputy executive director of the Hong Kong Trade Development Council, which hosted the event.
“For mainland China, Hong Kong is a conduit to the rest of the world,” Ms. Fong said.
The Atlanta forum also included panels on technology and logistics, as well as a luncheon speech by Michael Bryan, vice president and senior economist in the research department at the Federal Reserve Bank of Atlanta.
Visit www.hktdc.com for more information.