After initial euphoria, settlement in RMB slows down

August 27, 2009 - Hong Kong

It is now 25 days since, China adopted the RMB for settlement of overseas trade with cross-border enterprises, but according to reports received from banks and government agencies, the volume of business is not so large.

Mr Liang Yaowen, Director of Guangdong Foreign Economic and Trade Department admitted that so far the number of enterprises that have actually carried out the RMB clearing business is still small.

Companies are going slowly in accepting RMB settlement of cross-border, partly because there is widespread expectation of an appreciation in the RMB, due to which foreign investors are reluctant to make settlement in Yuan.

Settlement in RMB was begun on August 2, on a pilot basis for cross border trade settlement between Hong Kong and five mainland cities; Shanghai, Shenzhen, Guangzhou, Zhuhai and Dongguan.

The banking sector in China and Hong Kong were excited in competing for participation in the first batch of transactions, but transactions have been limited after the first wave of settlement of transactions.

Some export enterprises claim that although settlement in RMB has equal access to tax concessions, a cancellation certificate cannot be issued after verification of exports.

They add by saying that it is not possible to apply for export tax rebates, unless they attach a cancellation certificate after verification of exports, so this particular drawback is holding back settlement of trade in RMB.