RMB settlement of cross-border

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     RMB settlement of cross-border
     transactions pilot launched

     Early July 2009, the Administrative        contemplating on the pilot program on       settlement, good performance in
     Rules on Pilot Program of Renminbi         RMB clearing in the trades between          compliance with relevant financial &
     Settlement of Cross-border of Trade        Yunnan and Guangxi regions with             tax, commercial, customs and foreign
     Transactions ("Rules") was jointly         Southeastern countries.                     exchange administration rules and
     promulgated by the People’s Bank of                                                    regulations, and boasting reliable
     China (PBC), the Ministry of Finance       Concept                                     corporate credit. Pilot enterprises shall
     (MOF), the Ministry of Commerce                                                        be required on authenticity of the trades
     (MOC), the General Administration          RMB settlement of cross-border trade        settled with RMB, accuracy of records
     of Customs (GAC), the State                transactions refers to the practice of      on customs declaration of exports
     Administration of Tax (SAT), and the       clearing in renminbi currency the           & imports and information of RMB
     China Bank Regulatory Commission           transactions carried out between            income and payment.
     (CBRC), which marked the formal            domestic and overseas enterprises.
     implementation of the pilot scheme of      The practice was not allowed before         Meantime, in a bid to satisfy their
     RMB settlement of cross-border trade       the Rules. On April 8 2009, the State       demands, pilot enterprises may deposit
     transactions.                              Council decided on the pilot scheme         their RMB income from exports at
                                                of RMB clearing of cross-border             overseas banks while, however, filing
     The Rules listed Shanghai, Guangzhou,      transactions in five cities, however, the   with local branches of the PBC through
     Shenzhen, Zhuhai, and Dongguan as          administrative rules was not issued until   their domestic clearing banks. In case
     the first pilot cities, and Hong Kong,     July, which marked the formal launch        the pilot enterprise fails to transfer
     Macao and ASEAN countries for the          of the pilot program. The expansion         its RMB income to domestic banks
     first batch of overseas pilot regions.     of RMB use shall further facilitate the     within 210 days after exporting, it
     According to the Rules, HK and Macao       global role of the RMB currency.            shall within 5 work days report to
     enterprises may choose RMB clearing                                                    the RMB cross-border income &
     in trading with enterprises of Shanghai,   However, not all enterprises in the         payment information administration
     Guangzhou, Shenzhen, Dongguan              five pilot cities can benefit from the      system information of the amount of
     and Zhuhai, and qualified domestic         program. According to the Rules, pilot      the income remaining overseas, and
     commercial banks can provide the           enterprises shall be recommended            the code corresponding to the customs
     pilot enterprises with RMB clearing of     by the local government and then            declaration for the exporting through,
     cross-border trading, while providing      be subject to the verification and          and meantime provide related data and
     RMB trade financing for overseas           authorization of the Central Bank in        information to, it domestic clearing
     enterprises when conditions allow.         joint work with relevant authorities,       bank. Pilot enterprises each shall assign
     In the meantime of carrying out pilot      which will aim for inclusion of             one domestic clearing bank for the
     practice of RMB settlement of trade in     enterprises enjoying profound               main reporting banks for their RMB
     said regions, relevant authorities are     experiences in international trade          settlement of cross-border transactions,

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whereby the main reporting banks           and Macao without authorization of          and enterprises of China as well as
shall bear the duty of bringing to         the PBC, the Hong Kong Monetary             the neighboring countries and regions
their attention of obligations on          Authority and Monetary Authority of         are exposed to considerable risks
reporting and filing of related data and   Macao. Currently, the RMB clearing          of exchange rate fluctuation when
information.                               bank at Hong Kong is Bank of China          settling trade transactions with a third-
                                           (HK) Ltd., and that in Macao is Bank        country currency. With enhanced
Export trades cleared in RMB currency      of China (Macao) Ltd.                       and accelerated growth of the trade,
shall apply the exported goods tax                                                     investment and civil exchange of China
rebate (exemption) policies. Pilot         Impact                                      with the ASEAN countries, and those
enterprises are not required to provide                                                between China Mainland and Hong
the foreign exchange control declaration   Pilot implementation of the RMB             Kong and Macao regions, the RMB
on making customs declaration and          clearing of cross-border transactions       settlement practice is earnestly cried for
applying for exported goods tax rebate     indicates the further opening of China’s    in the civil business society.
(exemption) on RMB cleared cross-          financial markets. However, without
border trades. Tax administrative          full opening of capital items, it’s still   Settlement in RMB can reduce the risks
authorities under the State Council        a long way to the globalization of the      imposed to the exporters by exchange
shall work out administrative rules        RMB currency. The pilot work shall          rate fluctuation, and meantime cuts
on export rebate (exemption). Pilot        first aim for the objective of making       down their costs spent on foreign
enterprises breaching any state rules      RMB a major clearing currency in the        exchange sale and purchase. At present,
related shall be punished by law, and      trades with counterparts in regional        banks grant large business considerable
may have their qualification of pilot      neighbors and bordering countries.          discounts in their exchange sale and
enterprises revoked for any material                                                   purchase, however, small-size firms
fault. Information of pilot enterprises    A direct impact of the RMB clearing         have to bear fundamentally equal costs
in breach of laws and rules concerning     of cross-border trading shall be the        with the individuals on such, namely,
RMB settlement of cross-border             substantial alleviation of the risks        3‰. If calculated on the preferential
transactions shall be recorded in the      of exchange rate on the enterprises.        rate of 2‰, for exchange cost, the costs
cross-border RMB income and payment        RMB given an equal position to              saved could amount to USD1.6 billion
information administration system          foreign currencies, pilot enterprises       only taking account of the settlement
established and shared by relevant         shall benefit a lot, the biggest benefit    scale of over USD800 billion carried
departments and basic enterprise credit    being the avoidance of risk imposed         out by Bank of China Shanghai Branch
information database of the PBC.           by exchange rate fluctuation. When          in year 2008.
                                           priced with the currencies of United
RMB clearing of cross-border trades is     States (USD), Europe (Euro), or others,     Furthermore, with such practice, Hong
provided with two approaches. One is       exporter and importer enterprises           Kong enterprises can have legitimate
the approach for the trans-border RMB      faced considerable risk from                channels of RMB exchange, and no
fund clearing and settlement through       fluctuating exchange rates, and were        longer rely on illegal private banks,
RMB business settling banks in Hong        exposed to tremendous losses. With          thus protected in safeguarded allocation
Kong and Macao, and the other is one       implementation of the new program,          of funds and benefited in the smooth
which means domestic commercial            exchange rate fluctuation of USD and        development of domestic markets. In
banks may act as agents for overseas       Euro currencies can be effectively          this pilot campaign, Hong Kong, for
commercial banks in the cross-border       avoided, and more conveniences shall        its gigantic volume of trading with
clearing and settlement of RMB             be enjoyed in the exports and imports.      Mainland counterparts surpassing HKD
accounts.                                  Before the pilot practice, domestic         1,300 billion annual, shall be the most
                                           enterprises for foreign currency            benefited region. With Hong Kong
As for the RMB currency cross-border       clearing have to purchase foreign           banks following suits in opening the
clearing and settlement in Hong Kong       exchange on import while settling such      services for RMB settlement in cross-
and Macao, commercial banks having         on exporting, and bear full exchange        border trades, their clients shall extend
joined in the large sum payment system     rate risks on themselves. In the            to business enterprises, when the RMB
established by the PBC and having          shadow of the financial crisis, major       based business of Hong Kong banks
handled the business of RMB settlement     international settlement currencies         shall rise to a new stage.
in Hong Kong and Macao shall serve         such as USD and Euro were prone to
as RMB settling banks at Hong Kong         significant exchange rate fluctuations,     As trade transactions normally settled

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     in foreign currencies, RMB clearing
     at five pilot cities shall increase RMB         The author, Ms. Lian Lian, is Principal
     currency demands. In a long run,                Consultant at Odin Professional Services Co,
     it will impose some pressure in the             Ltd. She is a qualified lawyer in China and holds
     appreciation of RMB, however, the               a masters in Law. With more than 10 years‚
     initial phase is believed to be on a            hands-on experience in the sectors of import/
     considerably small scale since it’s only        export, Customs and regulated logistics in China,
     in practice in five pilot regions. On the       Lian’s expertise has been called upon by major
     beginning stage of implementation,              international corporations doing business in
     there might be the situation that, due          China.In 2003, she collaborated with the Chinese
     to varied levels of preparation work,           Manufacturers'Association (CMA) of Hong Kong on the publication China
     there might be some banks which in
                                                     Processing Trade All-in-One Guide ( N-WRfhbKQŠ
                                                                                                  ¿Œå] QŒ[        ). The book has
     the pilot cities are unable to open RMB
                                                     been published also in Japanese and Korean, and re-printed by China Customs
     settlement services immediately after
                                                     Department in 2004.
     the Rules. That may affect the scale of
     RMB settlement. Meantime, however,              Odin Professional Services Company Ltd. (OPS) are specialists in educational
     along with the increase flows of RMB            and consulting services related to import/export and Customs clearance practice,
     overseas, it shall raise a new challenge        for China operations of HK-based multinational companies. Odin has had
     to the regulatory authorities how to            collaborations since 2001 with trade organisations like the HKSC, CMA, HKPC,
     safeguard the stable and orderly cross-         and also the City University of Hong Kong. OPS trains staff and assists major
     border flows of RMB currency, when
                                                     enterprises in improving or revamping their import/export logistics.
     coordination of related departments
     including the customs, tax authorities,
     foreign exchange administration and
     other authorities shall prove to be vital
     in the success of the pilot scheme.
     Furthermore, unless the Chinese trader      made by a Shanghai, and a Hong                In this background, the Central Bank
     enterprises acquired strong price           Kong enterprise, which, basing on the         of China and Hong Kong Monetary
     negotiating abilities, the willfulness of   demands of the enterprises, might be a        Authority have concluded their
     foreign counterparts in RMB settlement      remittance transaction and concern the        agreement on regulatory work and
     and the market demands for such             cross-border flows of funds.                  mutual supports in respective scopes
     settlement shall have direct impacts                                                      of power over Hong Kong banks in
     over the effects of RMB clearing.           The largest market sharer in foreign          handling RMB trading settlement
                                                 exchange and trading finance business,        services, which means Hong Kong is
     Progress                                    Bank of China (BOC) is expected to            expected to be a first station on the way
                                                 be awarded the first RMB settlement           of RMB settlement of cross-border
     Validity of the Rules promised the          of cross-border trade transaction. BOC        trades. Hong Kong enterprises shall be
     prompt outcome of the first transaction     has taken lead signing with its overseas      the most active group of participants
     which is settlement in RMB currency.        agent banks agent agreement on RMB            in the cross-border RMB settlement
     Guangdong has finalized a list of           clearing, among which are Agreement           practice, and that would bring new
     300 business enterprises for the            on RMB Clearing and Settlement of             incentives and dynamics to the growth
     pilot scheme, which cover trade,            Trade Transactions signed with Bank           of Hong Kong’s financial industry.
     manufacturing and sales fields, and         of China HK Ltd. and the Hongkong             Currently, Hong Kong is already the
     among which 100 have their business         & Shanghai Banking Corporation                region besides Mainland boasting
     established in Guangzhou while              (HSBC). BOC thus becomes the                  most extensive RMB circulation and
     about 100 from Shenzhen. Majority           first bank signing agreements with            business undertaking and, basing on
     of the 100 pilot enterprises chosen         overseas agent banks on RMB clearing          solid foundation of RMB business,
     in Shanghai have made due reserves          and settlement of cross-border trade          Hong Kong is promised to be one of
     for RMB settlement and related              transactions, and has already opened          the major international financial centers
     arrangements for the implementation         agent services for the said two banks in      to be listed for further pilot practice of
     of scheme and capital allocation. The       the cross-border trading RMB clearing         RMB settlement of cross-border trade
     first transaction thus settled shall be     and settlement.                               transactions.

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