CNH Tracker-China's cross-border payment woes drive companies to yuan

By Michelle Chen

HONG KONG, Sept 19 (Reuters) - As Shanghai prepares to

announce details of its much awaited free trade zone next week,

it could take a leaf out of Hong Kong's success story in wooing

foreign companies to switch to the Chinese currency in

conducting trade.

Delays in cross-border payments for foreign currencies has

driven more multinational companies to the yuan when doing

business within China, boding well for the wider adoption of the

currency in global trade.

Companies used to rely mainly on the U.S. dollar to settle

trade with the world's second-largest exporter before they were

allowed to use the Chinese currency under a 2009 pilot program.

Yuan trade settlement has expanded quickly ever since and

the percentage of China's total trade settled in yuan has risen

from 12 percent in 2012 to nearly 20 percent currently.

Compared to trade settlement in dollars, yuan payments made

from an offshore subsidiary to an onshore subsidiary within the

same corporate group not only saves time, but avoids foreign

exchange risk, treasurers of multinational companies said.

Dollar payments into China have to go through a creeping

process before being converted to yuan, or renminbi (RMB),

during which these funds are trapped in dollar accounts and can

not be used for local operations, said a chief financial officer

at a European company which has operations in China.

"Before switching to RMB billing, we had to wait two to

three months for the dollar to be converted to yuan, but now

settlements could be done within a month," he said.

Beijing is making efforts to facilitate and streamline

cross-border yuan payments. The People's Bank of China allowed

mainland banks to process trade settlements in yuan for their

clients before verifying documents relate to the trade in July.

HSBC (LSE: HSBA.L - news) expects 30 percent of China's total trade flow or 50

percent of bilateral trade with emerging markets to be settled

in yuan in 2015, making the yuan the third largest trading

currency behind the dollar and the euro.

Companies that raise funds in overseas markets and hope to

repatriate them back to China may also find it more efficient if

these funds are in yuan, be it through a shareholder's loan or

equity injection.

Nearly half of foreign direct investment (FDI) going into

China in the first half of this year was in yuan, compared to

about 35 percent in 2012.

"Cross-border fund flows in yuan are now more convenient

than in dollars in many cases as they only need to be registered

with the SAFE (State Administration of Foreign Exchange) instead

of securing approvals," said Becky Liu, an analyst at Standard

Chartered.

That said, barriers remain to attract more companies to the

"redback", given rapidly changing regulations in China and the

inertia to stick to dollars.

Standard Chartered (Other OTC: SCBFF - news) surveyed 307 corporate treasuries in July

which showed that perception of a hard regulatory environment

and difficult internal process changes required are among the

biggest factors limiting the usage of RMB.

WEEK IN REVIEW:

* SK Global Chemical, a Korean petrochemical company, issued

a 950 million yuan ($155 million) three-year dim sum bond with a

coupon of 4.125 percent, according to a term sheet seen by

Reuters. The order books exceeded 2 billion yuan from 57

accounts.

* Citibank (China) said it had launched RMB cross-border

auto sweeping services to facilitate RMB cross-border lending

transactions, making it the first bank to offer such liquidity

management solution in the currency.

* AIA International was permitted by the People's Bank of

China (PBOC) to invest in China's interbank bond market with

offshore yuan funds.

* China's central bank has signed a bilateral currency swap

agreement worth 2 billion yuan ($327 million) with the Albanian

central bank, in a move to boost trade and investment between

the two countries.

* Bank of Communications launched its

offshore RMB Financial Bond Index Series which tracks the total

return of the offshore yuan financial bonds. The index starts at

100 with October 1, 2012 being the base date.

CHART OF THE WEEK:

Taiwan's yuan business picks up quickly after a yuan

clearing bank was assigned there in late January. Yuan deposits

in the island surged to 85.1 billion yuan in August, more than

double that in February.LEAGUE TABLES

Book runner: Proceeds (RMB mln): # of issues:

1.HSBC 40,294.3 119

2.Standard Chartered 20,184.9 63

3.BNP Paribas SA (Milan: BNP.MI - news) 18,571.8 58

4.ICBC 3,526.7 10

5.Bank of China 3,301.7 6

* Thomson Reuters data as of Sept 18.

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THOMSON REUTERS SPEED GUIDES