Economic and currency liberalisation is picking up in China
With a population of approximately 1.4 billion people and a growing consumer and middle class, China is a beacon of opportunity for UK importers and exporters looking to expand globally. According to HM Revenue & Customs’ overseas trade statistics, UK exports to China grew by a compound annual growth rate of 17% from 2006 to 2013, the second largest growth rate after Switzerland on 32%*
But entering a market as vast as China for the first time can be daunting, particularly for medium-sized UK companies with little experience of doing business in this part of the world. Restrictions on the free movement of the Chinese currency, the renminbi (RMB), by the Chinese government may have also created uncertainty among companies about how best to pay for goods and services they sell to or import from China.
Understanding China’s currency
Julie Smith, head of trade & working capital UK at Barclays, is confident China’s currency is on the rise: “US dollars may still be the currency of choice for our UK clients doing business in China, but it is time to demystify the RMB. We encourage UK companies to look at trading in RMB. It’s a currency they can purchase from Barclays to make payments to their Chinese suppliers.”
Smith goes on to explain that companies with sizeable cash balances sitting in China can now include these funds in a global cash pool. Companies can also centralise payments and collections, which is more in line with how they manage their cash in other parts of the world. “Financial liberalisation is accelerating in China. What’s key is that companies work with banks that understand how the RMB is evolving so they can help treasurers gain control over their RMB and foreign currency transactions.” This cooperation is crucial for success, as banks such as Barclays can help in keeping you up- to-date with the latest regulatory changes taking place as China looks to liberalise its currency.
RMB ready for trade According to data provided by the SWIFT
network, in January 2015 the RMB was the fifth-ranked global payments currency and accounted for 1.6% of global payments. Despite this, adoption of the RMB by UK corporates has been slower than the world's overall rate.
Smith suggests that UK companies wanting to do business with China will need to start familiarising themselves with the RMB. “UK corporates will start to see more trade in RMB over the next few years,” she says. “Large companies will likely see evidence of this first, but smaller and medium-sized businesses will also to an extent.”
Additionally as more Chinese companies are encouraged to use RMB to trade internationally, Smith says UK importers and exporters will increasingly deal in Letters of Credit (L/Cs) denominated in RMB. When importing from China L/Cs are used by Chinese suppliers not only to mitigate credit risk, but also to help them obtain working capital locally. “Similarly when UK companies are exporting to China, offering 60 to 90-day credit terms under an incoming L/C may offer a competitive advantage; the L/C proceeds can be discounted post-shipment, subject to UK banks confirming the L/C, thus accelerating cashflow” says Smith.
Potential discounts for renminbi trade
Smith continues: “UK companies could ask Chinese buyers and suppliers whether they can invoice or make payments in RMB, as there can be a discount or price benefit.
“If there is an opportunity to pay in the local currency, UK companies could push to negotiate potential discounts with suppliers, as local businesses often build in a small margin when the payment is made in a foreign currency such as the dollar, to cover their foreign exchange risk.”
Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No 122702). Registered in England. Registered number is 1026167 with registered office at 1 Churchill Place, London E14 5HP. September 2015.
www.businessmag.co.uk Working with UK Export Finance
When it comes to the export financing needs of UK companies that are funding operations in China, Barclays works closely with the UK’s export credit agency, UK Export Finance (UKEF). “Often UK companies are faced with competition from overseas competitors that receive assistance from export credit agencies. That’s where Barclays comes in, as we work closely with UK Export Finance and can make this assistance available to UK companies," said Smith.
Given the range of support services available to UK companies looking to do business with China, Smith is optimistic: “The opportunity is there and so are the financial tools, so we’re seeing more and more small and mid-size companies take the export leap. Why not talk with your bank about the steps you need to take to make China work for you?”
Details: Julie Smith 07775-550480 (mobile)
julie.smith@
barclays.com
*Source –
https://www.uktradeinfo.com/Statistics/ OverseasTradeStatistics/Pages/
OTS.aspx
The views expressed in this article are the views of the author alone and do not necessarily reflect the views of the Barclays Bank PLC Group nor should they be taken as statements of policy or intent of the Barclays Bank PLC Group. The Barclays Bank PLC Group takes no responsibility for the veracity of information contained in the third part guides or articles and no warranties or undertakings of any kind, whether express or implied, regarding the accuracy or completeness of the information given. The Barclays Bank PLC Group takes no liability for the impact of any decisions made based on information contained and views expressed.
THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2015
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