Shanghai to Boost RMB Trade Settlement

Shanghai government is going to promote the cross-border RMB trade settlement for the good of its own development.

Shanghai, on the one hand, is gradually increasing the purview of cross-border RMB trade settlement pilot; on the other hand, it is studying the measures about the inverse flow of RMB. The goals are apparent – to boost the internationalization of RMB and to promote the development into an international financial center.

In the “2010 Introduction Meeting for Pudong New Foreign Investment Policies” held on May 19, Tang Chao, deputy head of Foreign Investment Administration Department, Shanghai Municipal Commission of Commerce, said that the pilot purview of the cross-border RMB trade settlement will be further increased from then on. “The export-oriented enterprises, having no black marks, can be involved in the pilot project.” There are fewer limitations because the imports and exports businesses are not related with tax rebate.

It is known that the pilot project of cross-border RMB trade settlement, which was launched last July, has already seen the total trade volume of 7.3 billion yuan (USD 1.06 billion) by March 25, taking 50% of the total volume in the whole country. 92 companies took part in the project and another 963 enterprises will get involved in the immediate future.

But this is not a large quantity, especially compared with the colossus imports and exports business in Shanghai. According to the data, the imports and exports volume of Shanghai last year was 277.73 billion US dollars, of which the exports reached 141.91 billion US dollars and imports was 135.82 billion US dollars.

In the “3rd Financial Forum for the Yangtze River Delta” held on March 29, Tu Shaoguang, vice mayor of Shanghai, said that the Shanghai government is enlarging the pilot project with the support of the Chinese central government, involving more and more companies, including some foreign-funded companies in the cross-border RMB trade settlement.

However, once the project is enlarged, the foreign institutional and individual investors have to make deals with the more and more RMB flows they hold, in order to realize the added value when the exchange rate and market remain stable. The scope of cross-border RMB trade settlement can only be enlarged when the RMB held by the foreign investors can be put into use. Presently, there are quite a few channels for the RMB currencies in the foreign institutional investors apart from importing domestic commodities and services, opening bank accounts and exchanging foreign currencies.

Therefore, Tu Shaoguang said that the business cycle of cross-border RMB trade settlement needs to be consummated. Apart from the “small cycle” of the enterprises’ import and export, financing, application to customs, the “big cycle” including RMB trade, inverse flow and related financial polices should also be improved.

Also in the “3rd Financial Forum for the Yangtze River Delta”, Su Ning, vice president of People’s Bank of China, or the central bank, pointed out the cross-border RMB trade settlement is conducted under the condition that there is no convertibility under capital account. Therefore it is necessary to explore how to develop RMB trade. He said that the central encouraged establishing an offshore market for RMB in Hong Kong. Simultaneously it is studying the possibility of building an RMB offshore market in Shanghai. If the project is finished, the RMB currencies having flowed abroad can be traded in the overseas RMB offshore markets to earn profits.

Tang Chao said that the relevant department is studying the issues of RMB contribution under the capital account. “The laws, including the ‘Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures’ and the ‘Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures’, don’t have the clauses stressing that foreign currencies must be used in the cross-border trade; however, no real cases of using RMB happened in the practical operation.”

“By now there have been two companies expressing their demand for RMB contribution in the cross-border trade. We hope for more such cases so that we can submit our requirements to the Ministry of Commerce and the other relevant central departments,” said Tang Chao.