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(1)

Use of CNY in International Trade Settlement

German Chamber Shanghai – Workshop Controlling

Marcus Wassmuth

June 15th, 2011

(2)

In early 2009 the Chinese government started a pilot project for the internationalization of

the CNY: “The CNY Trade Settlement Scheme “:

Objections: Establish CNY as international trade currency.

The program was restricted to 5 provinces in China and allowed transactions

with Hong Kong, Macau and 10 ASEN countries

Participating companies in China had to be registered on a specific pilot list

In the second half of 2010 the project was step by step expanded:

Today:

Cross-border payments for Trade and Services are allowed without restrictions

20 Chinese provinces participate

World-Wide

Establishment of an CNY Offshore market in Hong Kong

(3)

CNH

Payments without restrictions

Products (CNH)

Conversion CNH / FX

CNH FX Forward

CNH Deposits

CNH Loans

CNH

CNH

Funds on a mainland

clearing account can be

transferred to HK

without restrictions

Only Trade related Payment

Import/Export of Goods

Services

Licences

Other

The background must be

proven by the Chinese

counterpart with documents

similar to FX payments

Only Trade related Payment

Import/Export of Goods

Services, Services etc.

Other

The background must be

proven by the Chinese

counterpart with documents

similar to FX payments

CNYClearing Account

Mainland China

CNY

CNY

(4)

Banks talk about ....

CNY

CNH

Official Chinese currency – used

Artificial Chinese currency – used as

In Mainland China and for direct

an Offshore currency in Hongkong for

Trade settlement with China

CNH specific products

Responsible authorities in China involved in Trade Settlement

CNY

FX

(5)
(6)

Regional restrictions

International counterpart: NO RESTRICTIONS

• Guangdong

• Guangxi

• Hainan

• Chongqing

• Sichuan

• Yunnan

• Jilin

• Heilongjiang

• Xizang (Tibet)

• Xinjiang

• Beijing

• Tianjin

• Inner Mongolia

• Liaoning

• Shanghai

• Jiangsu

• Zhejiang

• Fujian

• Shandong

• Hubei

(7)

Participants

China

Import: All companies in China located in the permitted

provinces

Export: All companies in China located in the permitted

provinces and registered as Mainland Designated

Enterprises (MDEs)

(8)

Participants

Worldwide

Import: All companies with respective China business

Export: All companies with respective China business

(9)

Permitted cross-border payment

Condition:

The underlying business is verified through the presentation of

respective documents by the Chinese counterpart (Import / Export)

Settlement of Trade in Goods

Export

Import

(10)

Specifics

Payment instruments

TT Transfer

Letter of Credit

DP / DA

Documents to be presented

Contracts

Invoices

Transportation documents

Customs declarations

(11)

RCPMIS (PBOC)

All CNY cross-border payments are registered in the RCPMIS-System by the

Chinese banks

Trade Credit Registration and Administration System (TCRAS)

According to voices of PBOC, advance payments and deferred payments in

CNY do not need to be registered in the TCRAS system of SAFE

(12)

Restricted cross-border payment

Condition:

These transactions need an individual approval by the respective

department of PBOC. Currently there are no fixed rules under which

circumstances these approvals would be granted.

Capital items

Injection of registered capital

CNY Loans from abroad

(13)

Reasons to switch from FX to CNY Settlement

Foreign Corporate

Negotiation advantage

Active management of FX Risk

Reducing conversion cost

Usage of CNY funds in the HK

CNY offshore market

Chinese corproate

Avoid FX risk

Simplification of administrative

process

Reducing conversion cost

Simplification of VAT refund

(14)

Usage of CNY funds

Conversion into FX, i.e. EUR or USD

Keep funds on an CNY offshore account for later use in

China trade

Transfer to HK offshore market for investment in

offshore products

Term Deposits

Bonds

(15)

Overview – Payments in CNY

Foreign company pays salaries CNY to

employees in China

Foreign company covers cost in CNY to

representative office

Special approval by PBOC

Foreign investor grants loan in CNY to

Chinese subsidiary

Special approval by PBOC

Foreign investor pays CNY for capital injection

to Chinese subsidiary

Chinese payee presents respective

documents including WHT to his bank

Foreign service provider receives CNY for

services to China

Chinese exporter is registered as MDE

and presents respective documents to

his bank

Foreign importer pays CNY for purchase of

goods

Chinese importer presents respective

documents to his bank

Foreign exporter receive CNY for sales of

goods

Condition

Possible

(16)
(17)

Marcus Wassmuth

Gao Su

Country Head China and Chief Representative

Chief Representative

Landesbank Baden-Württemberg

Landesbank Baden-Württemberg

Shanghai Representative Office (3113)

Beijing Representative Office (3113/1)

2312, LJZ Plaza, 1600, Century Avenue

Unit 1130, Landmark Tower II, 8 North Dongsanhuan Road

Shanghai 200122 P.R. China

Beijing 100004 PR China

Tel.:

+86 (21) 5081 6002

Tel.: +86 (10) 6590 0166

Mob.: +86 139 1603 7986

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