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Firms may miss China trade and infrastructure boom even as Renminbi use climbs

Posted on Oct 20, 2016

Almost a fifth of Australian companies are now using the renminbi (RMB) to do business with China, but few are capitalising on the Chinese government’s flagship ‘Belt and Road’ trade initiatives.

In a new survey from HSBC, which polls 1,600 decision-makers across 14 countries, 18 per cent of Australian respondents said their firm is using RMB versus just 13 per cent a year ago. Yet when asked about Belt and Road – the name given to a series of policy developments and infrastructure projects designed to spur USD2.5 trillion of cross-border commerce annually – only 7 per cent of those who are aware of the strategy said they had begun planning to capitalise on it.

More than 40 per cent of Australian companies believe the RMB will be an international trading currency in the next five years, versus 29 per cent in 2015. However, only a handful are aware of the business opportunities that Belt and Road will deliver. By boosting connectivity, it will catalyse trade between more than 60 countries that are home to nearly two thirds of the world’s population. For any company seeking growth and new customers, that’s an exciting proposition to explore.

First laid out by Chinese President Xi Jinping in 2013, the Belt and Road blueprint aims to develop two corridors linking China to the world. The ‘Belt’ refers to the historic overland Silk Road trading routes connecting China via central Asia to Europe and the Middle East. The ‘Road’ refers to the maritime equivalents to the south, linking China, Southeast Asia, India and Africa.

President Xi Jinping in April this year called for the alignment of Belt and Road with Australia’s northern development plan for the first time.

Chinese enterprises invested USD14.8 billion in 49 countries along the ‘New Silk Road’ last year, working on projects including an Indonesian railway, a Greek logistics hub and Bangladeshi power facilities. The state-run China Development Bank has said it plans to contribute USD895 billion of project funding.

As the initiatives progress they are likely to boost international use of the RMB. Seeking to track global perceptions of China’s trade and currency, HSBC commissioned a similar survey from Nielsen in 2015. Allowing for one country change, replacing Brazil with Mexico, comparison of the two surveys shows the number of companies using RMB for cross-border commerce rising to 24% from 17% a year earlier.

One reason for this is that businesses are finding the RMB much easier to use, according to the 2016 survey. As Chinese financial regulations evolve, and as businesses become more accustomed to using China’s currency, respondents said they’re having less difficulty understanding regulations, navigating documentary requirements and moving funds than they did in the past.

Steve Hughes is Head of Commercial Banking at HSBC Australia.