by Lady Michelle-Jennifer Santos, Founder & Publisher and Agencies
January 27, 2013 (TSR) – Hong Kong Monetary Authority CEO Norman Chan said in a recent exclusive interview with Xinhua that growing trade relations between the Gulf Arab oil states and China triggered a surge in transactions in Renminbi, adding the process was still in its early stages
RMB trade in mainland China is restricted for foreign firms, whereas “in Hong Kong there is no restriction for RMB funds transfers for foreigners and any firm can open an RMB account,” said Chan, who made a stopover in Dubai to promote Hong Kong as an offshore hub for Renminbi trade. He said that 30 percent of China’s trade including re-exports and offshore trade was intermediated through Hong Kong.
He said that most of the trade from Gulf Arab countries in the Chinese currency was done by firms in the United Arab Emirate (UAE) and Dubai in particular “because Dubai plays an important role as a gateway to all Gulf states,” said the Hongkong Monetary Chief.
Farooq Siddiqi, managing director for transaction banking at Standard Chartered confirms this May last year to the Arabian Gazette when he said that growing trade ties with China and volatility in dollar and euro is pushing Gulf states toward an increased use of the Chinese yuan for trading.
In a bid to compensate for a decline in oil supplies from Iran which faces sanctions from US and the EU, Gulf states have increased the sale of crude oil to Far Eastern countries like China and South Korea, shifting their focus towards Asia and Africa, hedge against dollar exposure and away from the historic trade partners of US and Europe.
Last year, the central banks of the UAE and Qatar have instructed lenders stop financing trade with Iran due to the US-led sanctions and many exchange and trading houses in the UAE have scaled back since it has been difficult to get paid for their transactions.
China is the largest consumer of energy resources produced by the Gulf Cooperation Council (GCC) countries, as well as the largest source of imports.
More than 9% of Arab global trade with China, worth circa $330 billion, is denominated in renminbi yuan. With the double-digit growth in 2012, it is expected to hit $1 trillion in 2020 at a growth rate of 15 per cent.
Today, the volume in Renminbi trade conducted by local Arab firms and Chinese companies residing in the countries of the Gulf Co- operation Council GCC (Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman) was still low but it was growing fast.
Bilateral trade between the UAE and China has grown at a remarkable annual rate of 35% over the last 10 years, grew 15-fold since 2000 and surpassed $100 billion U.S. dollars by 2015, which Chan confirms.
China central bank signed a three-year currency swap deal with the UAE worth 35bn yuan ($5.62bn) in January 2012 in a bid to boost two-way trade and investment, intensifying financial and commercial relations.
Emirates NBD, Dubai’s leading bank, sold the region’s first offshore Chinese renminbi-denominated bond in March 2012.
According to the data released by Chinese customs, trade between China and the UAE grew to $32bn in value, up 38%, during the first 11 months of 2011 alone.
As of now export and imports done in Chinese RMB by the UAE account for only 4 percent of the Gulf state’s total foreign trade “but chances are high that this figure will rise to double-digit rates in the coming years,” said Chan.
According to the Dubai Chamber of Commerce, some 2,500 Chinese firms reside in Dubai. China’s largest bank ICBC and the Bank of China have branches in the Gulf Arab sheikhdom.
Companies buying goods from China or those which export goods to China can trade, borrow, issue bonds in Renminbi and they can hedge easily through forwards and futures in the Chinese currency, explained Chan.
In order to benefit from growing trade relations the two largest UAE lenders Emirates NBD and National Bank of Abu Dhabi as well as Qatar’s number one Qatar National Bank opened their first representative offices in mainland China in recent months. British banks Standard Chartered and HSBC also offer RMB transactions for GCC firms through their branches in Dubai.
But London, where 37 percent of the global foreign exchange trading deals are handled also established RMB trading in April 2012 in order to get a slice of the growing global RMB trade.
Regarding the role of Hong Kong, Chan said that the special administrative region was not only helping to conduct trade between offshore firms and onshore firms in mainland China, but also between China and other important trade hubs in East Asia such as Singapore, Kuala Lumpur or Jakarta, places with huge Chinese business communities. In fact 90 percent of China’s RMB trade is done offshore, said Chan.
Daily turnover in RMB trade in Hong Kong grew from 5 billion Yuan in 2010 to 110 billion Yuan in 2011 and eventually reached 250 billion Yuan last year, said Chan.
The CEO of the Hong Kong Monetary Authority sees the city’s role in offshore RMB for the GCC just at the beginning. The chances are high that Chan is right. Global consultancy McKinsey and Company predicts that bilateral trade between China and the Middle East will reach between 350 billion U.S. dollars to 500 billion U.S. dollars by 2020 with the GCC accounting for the lion’ s share of this figure.