Many Chinese companies are willing to offer price discounts in return for using yuan to settle trade, HSBC PLC said in a recent survey.
The survey affirmed cost advantages to businesses outside China that choose to settle trade in yuan. It also implied the Chinese currency may rapidly gain popularity across the Taiwan Strait as the governments on both sides are set to work out currency clearing and settlement rules.
China is Taiwan’s largest trade partner, accounting for 40 percent of outbound shipments.
Some 41 percent of Chinese firms indicated they would offer discounts of 3 percent and a further 9 percent said they are willing to offer greater discounts if partners would settle trade in yuan, HSBC said in the survey released last Wednesday.
The vast majority, 77 percent, of Chinese corporates expect one-third of all Chinese trade — valued at US$2 trillion a year — to be conducted in yuan by 2015, the survey said, adding that 30 percent plan to use yuan for investment-related purposes in the next 12 months.
“International businesses looking to benefit from China’s growth must explore the benefits of using yuan when transacting with their Chinese counterparts to take full advantage of discounts that may be available,” Noel Quinn (管祁耀), HSBC’s regional head of commercial banking for Asia Pacific, said in a report.
Moves by the Chinese government to increase exchange rate flexibility and simplify transaction processes have changed the dynamics of cross-border yuan business, with a big drop in the number of firms using yuan on expectations the currency would appreciate.
Only 25 percent of respondents said they used yuan to benefit from currency appreciation this year, compared with 44 percent last year, the survey showed.
Rather, exchange risk management and operational convenience are the main reasons for choosing yuan for cross-border transactions, it said.
About 72 percent of those surveyed use yuan to help manage their foreign exchange risks, a sharp increase from 49 percent last year, and 44 percent stated that the currency brought operational and accounting advantages, the survey said.
Although import and export transactions were the most common type of yuan business transactions, the survey found that 30 percent plan to use yuan for other purposes in the next 12 months: Fifteen percent of corporates said they intend to use yuan for capital injections, 11 percent plan to use it for offshore loans and 4 percent for cross-border acquisitions, it showed.
Overseas businesses have experienced increasingly easy access to yuan liquidity over the past year, with only 14 percent reporting that their overseas counterparts lacked sources of yuan, or lacked uses for yuan funds received, the survey said.
Montgomery Ho (何舜華), head of commercial banking at HSBC China, said the yuan is on track to becoming a major trade currency by 2015.