Published: November 01, 2014
Despite some softening of growth in recent months, China remains a priority market for corporations of all sizes, for both sourcing and sales. Larger multinational corporations and financial institutions are already familiar with the opportunities to use RMB as a settlement currency with counterparties in China, but mid-cap companies are at an earlier stage in RMB adoption. In this Executive Interview, Frank Oliver Wolf and Martin Keller discuss the benefits for mid-cap companies of introducing RMB into their currency mix.
Frank Oliver Wolf: At the start of 2013, RMB was ranked as the 13th global payment currency. Only eighteen months later, RMB had become the 7th largest payment currency globally (SWIFT’s RMB Tracker, September 2014), a remarkable leap in such a short time. This emphasises the increasing market confidence in the use of RMB, and the expanding range of opportunities to manage payments and collections, liquidity and cash investment in RMB, both on- and offshore.
With ongoing uncertainty in developed market economies, particularly the Eurozone, our mid-cap customers are becoming increasingly proactive in exploring commercial opportunities outside their home region, with China a particular focus given its size and potential. By adopting RMB as a trade settlement currency, the opportunities for these companies to do business in China and form strategic partnerships in the region are amplified.
Martin Keller: As you mentioned before, these opportunities are not new: after all, the ability to settle cross-border trade in RMB was first introduced in 2009; however, the obstacles to RMB adoption continue to fall, making it an increasingly attractive proposition. For example, while Hong Kong remains the largest offshore RMB clearing hub, the development of Frankfurt as an RMB clearing hub is particularly appealing to corporations headquartered in Europe, particularly Germany. The economic links between Germany and China are very strong, and the opportunity for mid-cap companies such as in manufacturing industries, to form or strengthen partnerships with counterparties in China are becoming increasingly compelling. Working with banks in London or Hong Kong for RMB clearing can be a daunting prospect, however, for these companies that may have no history of doing so. Conversely, accessing RMB clearing in Frankfurt enables mid-market companies to benefit from local expertise and language skills within the same time zone, as well as the ability to work with banks with which they have an existing, trusted relationship. Furthermore, Frankfurt is quickly emerging as a centre not only for transaction clearing, but also for a wider suite of solutions, including cash management, FX and investment. This makes it easier for corporations in Europe to include RMB held offshore within their regional and global cash management structures.
FOW: One of the biggest obstacles to RMB adoption amongst mid-cap corporations is lack of information. This is a particular area in which Commerzbank can help. We are proactive in helping companies to understand and implement steps to enable RMB settlement, and take advantage of the opportunities that exist to manage cash and risk accordingly.
While there are a number of large banks that support RMB, mid-cap corporations in particular are looking for a bank to accompany them throughout the process, and help them to implement the right solutions for their business. As the regulatory environment in China is complex and fast-changing, there is a tendency to assume that RMB adoption must be complicated, but we help our customers to keep things clear and simple. Mid-cap corporations are already accustomed to managing more than one currency and despite perceptions of complexity and constraint, including RMB into the currency mix is no different.
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MK: One of the most common conceptions of doing business in China is that cash will be ‘trapped’ as a result of both liquidity and currency restrictions. In fact, regulatory changes over the past year have meant that restrictions are becoming far less onerous. For example, from an FX perspective, RMB can now be traded directly against the EUR rather than via USD, which reduces costs and improves transparency. Since the band in which RMB trades against the USD was widened in March 2014, volatility has increased and it has become easier, and, at the same time, necessary to manage currency risk.
From a cash and liquidity management perspective too, opportunities are changing. For example, while RMB held offshore can be included in multi-currency cash pools, onshore RMB can now be included in cash pools, while regulatory approval for cross-border intercompany loans and dividends has been further relaxed.
FOW: Commerzbank has emerged as a strong player in the RMB space, supporting German corporations from mid-cap to MNCs in achieving their ambitions in China. We have local offices in China and other parts of Asia, and an extensive network of over 5,000 correspondent banks across more than 180 countries, supported by a depth of knowledge that is particularly valued by our customers. By leveraging the strength of our presence and knowledge base in Germany, customers benefit from a single point of contact, local language and cultural synergies and our expertise in understanding and supporting the needs of mid-market corporations. This familiarity can be very reassuring whenever embarking on a new venture, such as adopting RMB for doing business in China.
At Commerzbank, our customers have a global relationship manager, supported with local expertise.
Our customers often tell us that they find it difficult to do business with some of the large global banks, not least because mid-cap companies may be of little interest to these banks. Even where they can form a relationship, customers are often disappointed at the lack of global consistency in solutions, services and relationships that they experience. Conversely, at Commerzbank, our customers have a global relationship manager, supported with local expertise. The relationship manager facilitates customers’ cash and banking requirements wherever in the world they do business with us, such as opening accounts, connecting with our electronic banking platform, and implementing the transaction banking solutions that specifically meet their needs.
MK: While China is typically the first country in Asia in which many of our mid-market customers seek regional expansion, many are also expanding into other parts of Asia either alongside their China strategy or as a subsequent phase in their growth ambitions. Commerzbank’s expansion continues to mirror that of our customers: for example, we expanded first into Central & Eastern Europe, followed by China and subsequently other parts of Asia, Africa and Latin America. There are no banks that can offer a consistent depth of presence in every country, but we have adopted a highly pragmatic, effective strategy to meet our customers’ global needs. In particular, our unparalleled correspondent banking network facilitates secure, efficient cash and trade flows globally. The quality of the network ensures that a customer, or its beneficiary receives the full value of the payment without each correspondent bank taking a fee, which makes it difficult to achieve transparency over the cost of payments, or to reconcile amounts. Indeed, Commerzbank recognises the importance of Asia, and as such, within the bank, a dedicated ‘Asia Expert’ takes care of all issues regarding our mid-cap customers’ Asia business.
FOW: It is important for companies of all sizes to recognise that RMB adoption is not an issue for tomorrow, but for today. Over the next few months and years, RMB will become increasingly important as a vehicle for cross-border trade, and those that do not leverage this opportunity will lose commercial advantage compared with those who do. Commerzbank can make the prospect far less daunting, by providing education, advice and practical help throughout the process, maintaining simplicity and promoting commercial advantage.
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