rmb internalization, rational, establishing of clearing bank and requirement of becoming a hub
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Strictly private & confidential 1
Private & Confidential
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RMB Internalization
Strictly private & confidential
Index
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Index
• Executive Summary 03
• RMB Internationalization 04
• RMB Clearing Bank Development Process 17
• Requirements to be a RMB Hub 21
• Global RMB Hubs 24
• China-Africa Cooperation 35
• China-Russia Cooperation 44
• Appendix 51
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Executive Summary
The research is a joint collaboration between MCM Partners and the Chinese University of Hong Kong (CUHK)
In this presentation, we will first provide you the rationale behind the internationalization of RMB. It also describe the role and process of establishing of RMB clearing bank, as well as the list of requirements to becoming a a RMB hub.
Next, we will introduce the major RMB hubs in the world, which are Hong Kong, London and Frankfurt, by providing you with numerous facts, numbers and statistics.
Last but not least, in-depth analyses in the trade and cooperation between China and Africa, as well as China and Russia, will be included in this presentation.
At the end of the presentation, you would clearly understand the past, current and future development of the RMB hubs.
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RMB Internationalization
Strictly private & confidential
Lower cost RMB financing for foreign
entities
• RMB trade financing and CNH bonds financing have lower costs and can eliminate foreign exchange risk for foreign entities.
Greater investment choices for foreign entities
• FX forward, FX options, interest rate swap, cross currency swap and bespoke structured risk management products tend to have more liquidity.
More benefits from RMB appreciation
• There is a strong expectation of RMB appreciation which can be benefited through trading.
Broader access to onshore purchasers and suppliers for foreign counterparties
• Foreign corporates can freely pay and receive RMB for settlement of cross-border trade of goods and services with mainland corporates.
Lower trade transaction costs for foreign
counterparties
• Due to reduced FX risks bearing by mainland corporates, cost savings can be passed to their trade counterparties.
Less restrictions on RMB transferring
• Onshore-Offshore: RMB intercompany loans
• Offshore-Onshore: CNH shareholder loans, an injection of equity capital and remittance based on real trade to onshore
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Why Adopt RMB?
Strictly private & confidential 6
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• The exchange rate gap
with USD between
onshore and offshore
RMB is minimizing
since the start of CNH
market in Hong Kong
in 2010.
• The real EER is
exceeding nominal
EER since 2011
illustrates RMB strong
tendency to further
appreciate against
USD.
• The rocketing trading
volume of CNH
market indicates its
replacement of NDF
market in the
foreseeable future.
Market Content Regulators FX Scheme Investors Forward
Curve
CNYOnshore
RMB PBOC, SAFE
CFETS, daily
fixing with PBOC
intervention
Onshore residents,
approved offshore
investors
Onshore interest rate
CNH
Offshore
deliverable
RMB
HKMA,PBOC OTC, market
settlement
Offshore
investors
Offshore interest rate
NDFOffshore non-
deliverable
RMB
None
OTC, daily fixing
based on CNY
central parity rate
set by PBOC
Offshore
investors
Offshore interest rate,
expected and
influenced by CNH
market
Source: Bloomberg Source: Bank for International Settlements
One Currency, Two Curves, Three Markets
* Comparisons among CNY, CNH and NDF markets
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RMB Internationalization
2002-2008 2009 2010 2011
• QFII scheme
established.
• Dim sum bonds
issued in Hong
Kong.
• RMB cross border
trade settlement pilot
scheme between
Mainland Designated
Enterprises (MDEs)
in 5 cities and
corporates in Hong
Kong, Macau and
ASEAN.
• China's Ministry of
Finance issues the
first government dim
sum bond in the
offshore market.
• RMB cross border trade
settlement expanded to
20 provinces and
corporates all around the
world.
• Trade settlement
expended list of eligible
MDEs to over 67000.
• RMB bonds of all types
were open to all financial
intermediaries.
• China's Ministry of
Finance sells 8 billion
yuan of bonds of
different maturities in
Hong Kong.
• QFII allowed to
invest in the stock
index futures.
• RMB cross border
trade settlement
covered entire
China.
• RQFII scheme
established.
• RMB ODI was
allowed.
A Global Trade Settlement Currency
A Global Investment Currency
A Global Reserve Currency
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A Global Trade Settlement Currency
A Global Investment Currency
A Global Reserve Currency
• A dim sum bond is
issued in London for
the first time.
• RMB cross border
trade settlement
expanded to all
Chinese corporates
with import/export
scope on their
business licenses.
• PBOC granted
RQFIIs access to
inter-bank bond
market.
• RMB business started in
Taiwan
• First issue of an offshore
yuan bond in Taiwan.
• First issue of an offshore
yuan bond in Singapore.
• PBOC granted QFIIs
access to inter-bank bond
market.
• RQFII launched in Taiwan,
Singapore and London.
• Simplified RMB cross
border trade settlement
process announced
• Shanghai Free Trade Zone
was set up.
• The first RMB bond
was issued in
Germany.
• The largest offshore
RMB bonds was
issued in Singapore.
• The first non-Chinese
sovereign yuan bond
issued in UK.
• Shanghai-Hong Kong
Stock Connect
Program was
officially launched.
2012 2013 2014
RMB Internationalization
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A Global Trade Settlement Currency
Currently:
• RMB is the seventh mostly-used payment currency according to SWIFT.
• RMB is the ninth most actively traded currency according to BIS.
• RMB surpassed the EUR as the second most used currency in international trade finance
according to SWIFT.
• RMB trade settlement accounted for 3%, 9%, 12% of the total China trade respectively
in 2010, 2011 and 2012, presenting an increasing usage of RMB as a trade settlement
currency.
Source: CEIC Data
0
200
400
600
800
1000
1200
1400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
RMB Settlement for Cross-Border Trade (CNY billion)
2010 2011 2012 2013
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What’s next?
• In 2013, China exceeded the United States, becoming world’s 1st largest trading
economy, the 1st largest export trading economy and the 2nd largest import trading
economy. It is predicted that the trade volume gap between China and the United
States will further widen, employing linear regression.
• China’s consistent and continual growth of exports and imports of merchandise
and services since 2005 demonstrates its sustainable development potential in the
foreseeable future.
Source: World Bank
1000
2000
3000
4000
5000
6000
7000
8000
9000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Exports and Imports of Merchandise and Services(annual basis, USD bn)
China
United States
Japan
United Kingdom
Germany
China-Regression
United States-Regression
Japan-Regression
United Kingdom-Regression
Germany-Regression
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What’s next?
• China’s merchandise export
with developing economies
exceed that with developed
economies in 2011.
• China’s excess merchandise
import with developing
economies over that with
developed countries increase
gradually on the whole.
• It is expected that RMB will
be increasingly used in cross-
border trade settlement
between China and
developing economies with
the increasing multilateral
trade volume.
Source: UNCTAD
Source: UNCTAD
0 200 400 600 800 1000 1200
200520062007200820092010201120122013
China Merchandise Export with Different Parties(annual basis, USD bn)
Developed Economies Developing Economies
0 200 400 600 800 1000 1200
2005
2006
2007
2008
2009
2010
2011
2012
2013
China Merchandise Import with Different Parties(annual basis, USD bn)
Developed Economies Developing Economies
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A Global Investment Currency
CSRC SAFE PBOC
QFII
• Approves QFII
status
• Regulates onshore
securities
investments by
QFII
• Approves and allocates
QFII investment quota
• Regulates QFII’s
onshore accounts
• Regulates fund
repatriation/remittance
RQFII
• Approves RQFII
status
• Regulates onshore
securities
investments by
RQFII
• Approves and allocates
RQFII investment quota
• Regulates
onshore RMB
accounts
• Regulates fund repatriation/remittance
• The total QFII quota and RQFII
quota are increasing sharply,
especially for RQFII, 20 times as
much quota in 2013 as in 2011.
• The start of Stock Connect
between mainland and Hong Kong
in November strengthens the
expectation of further globalization
of mainland capital market.
• Despite the rocketing quota of
indirect investment for foreign
investment entities, its proportion
over China’s equity market
capitalization is still of
insignificance, indicating strong
potential development of China’s
equity market.
• The foreign direct investment are
lifting restrictions and it is
expected that further lifting is
imminent.
Source: SAFE
* Regulators of QFII and RQFII
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What’s next?
Source: World Bank
Source: World Bank
• China’s net inflows of
foreign direct investment
exceed that of the United
States in 2009.
• China has always been the
most popular choice of
foreign direct investment
among developing
economies since 1990s.
• China’s net inflows of
portfolio equity has strongly
recovered since its sharp
decline in 2011 .
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010 2011 2012 2013
Foreign Direct Investment, net inflows(annual basis, USD bn)
China United States Japan United Kingdom Germany
-100.000
-50.000
0.000
50.000
100.000
150.000
200.000
250.000
300.000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Portfolio Equity, net inflows(annual basis, USD bn)
China United States Japan United Kingdom Germany
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What’s next?
• Both China’s inward FDI and
outward FDI global market
shares are increasing,
accounting for over 8% and
7% in 2013, respectively.
• China’s inward FDI of stock
has a stable increase since
2005, showing strong
momentum. But its global
market share is relatively
small, only about 2%.
• It is expected that there’s huge
potential growth of inward and
outward FDI considering the
continual deregulation and
increasing quota of QFII,
RQFII and QDII programs.
Source: UNCTAD
Source: UNCTAD
Source: UNCTAD
Strictly private & confidential 15
What’s next?
Source: Bank for International Settlements
• In 2013, CNY consisted of 1% of the global FX market turnover. It is predicted that in
2027, CNY will account for 8% of the global FX market turnover. It is expected that
CNY global FX market turnover will exceed GBP before 2025.
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2001 2004 2007 2010 2013 2016 2019 2022 2025 2028
Global Foreign Exchange Market TurnoverNet-net basis, average daily turnover in April (USD bn)
CNY
USD
JPY
GBP
EUR
CNY-Regression
USD-Regression
JPY-Regression
GBP-Regression
EUR-Regression
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A Global Reserve Currency
• In 2010, China’s GDP exceeded Japan, becoming world’s 2nd largest economy. It is
predicted that China’s GDP will exceed that of the United States around 2016 using
exponential regression.
• 1% increase in one country’s GDP global market share (based on real exchange rate)
reasonably leads to 0.55% increase of its currency reserve in central bank.
• It is reasonable to predict that RMB will become a global reserve currency in the next
five years.
Source: World Bank
0
10000
20000
30000
40000
50000
60000
70000
2005200620072008200920102011201220132014201520162017201820192020202120222023
Gross Domestic Product(annual basis, USD bn)
China
United States
Japan
United Kingdom
Germany
China-Regression
United States-Regression
Japan-Regression
United Kingdom-Regression
Germany-Regression
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RMB Clearing Bank Development Process
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Established RMB Clearing Banks
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Established RMB Clearing Banks
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PBOC’s RMB Bilateral Swap Lines
AMERICAS
Country RMB Bn Country RMB Bn
Argentina 70 Brazil 190
Total RMB 260bn
AISA PARCIFIC
Country RMB Bn Country RMB Bn
Hong Kong 400 Indonesia 100
South Korea 360 Thailand 70
Singapore 300 New
Zealand
25
Australia 200 Japan 18
Malaysia 180 Mongolia 10
Total RMB 1663bn
EMEA
Country RMB Bn Country RMB Bn
ECB 350 Pakistan 10
UK 200 Turkey 10
Russia 150 Kazakhstan 7
UAE 35 Iceland 3.5
Belarus 20 Albania 2
Ukraine 15 Uzbekistan 0.7
Hungary 10
Total RMB 813.2bnSource:PBOC
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Requirements to be a RMB Hub
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Requirements to be a RMB Hub
HK London Frankfurt
RMB goods trade* 401 billion 70 billion 162 billion
Offshore RMB deposit 1053 billion 14.5 billion 2.5 billion
Clearing banks BoC, Hong Kong
branch
CCB, London
branch
BoC, Frankfurt
branch
Bilateral swap line 400 billion 200 billion 350 billion**
RQFII quota 270 billion 80 billion 80 billion
RMB denominated
bonds issued
116 billion 13.1 billion 1 billion
Infrastructure RTGS RTGS with
extended operating
hours (20.5h)
RTGS with
extended operating
hours (20.5h)* All data are denominated in RMB
**The 350 billion BSA is given to ECB
Settlement Currency Investment Currency Reserve Currency
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Requirements to be a RMB Hub
Political and economic stability
Sound legal system and comprehensive regulatory framework
Effective risk management
Considerable track record of innovation
Experience in capital markets trades
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RMB Hubs in the Globe
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Main Advantages of Three Global Hubs
• Hong Kong
Gateway toward Chinese market and policy initiatives
Large RMB business base and strong trade and investment relationship
Advantageous financial infrastructure
• London
World largest FX trading center
European time zone convenience: 15(6):30-23(4):30, 9:00-16:00 (hk)
• Frankfurt
Largest trade partner in Europe, with government Agreement to use more
RMB and Euros in settlement trade
European time zone convenience: 15:00-23:00
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RMB Deposits in Hong Kong and London
0
2
4
6
8
10
12
14
16
0
200
400
600
800
1000
RM
B D
epo
sit
in L
on
do
n
RM
B D
epo
sit
in H
on
g K
on
g
Year
RMB Deposit Amount
Hong Kong/ billion London/ billion
• Deposit in Hong Kong
surges after 2010
Chinese government
promoted a new series
of RMB policies in Jun
2010
• Deposit in London
fluctuates
Level remains as Hong
Kong in 2004
Source: HKMA, city of London
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RMB Deposits in Hong Kong and London
• Loan in Hong Kong
Increase at an annual
rate of 30% - 40%
• Loan-to-Deposit ratio
remains low
Recently above 15%
Source: HKMA
0%
5%
10%
15%
20%
0
200
400
600
800
1000
2012 2013 2014.9
Loan
to
Dep
osi
t
Dep
osi
t an
d L
oan
in B
illio
n R
MB
Year
RMB Deposit and Loan in Hong Kong
Deposit/ billion Loan/ billion Loan to Deposit
RMB Loan and Loan-to-Debt ratio in Hong Kong
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Trade Volume between Mainland China, Hong Kong, UK and Germany
Source: Ministry of Commerce of the People's Republic of China
-0.2
-0.1
0
0.1
0.2
0.3
0.4
050
100150200250300350400450
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gro
wth
Ra
te
Exp
ort
& I
mp
ort
in
Bil
lio
n U
SD
Year
Mainland-Hong Kong Trade Volume
Hong Kong Growth
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0
50
100
150
200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gro
wth
Ra
te
Exp
ort
& I
mp
ort
in
Bil
lio
n U
SD
Year
China-UK/ Germany Trade Volume
UK Germany UK Growth Germany Growth
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RMB trade settlement between Mainland China and UK
Sources: city of London
• Quota is of concern
The settlement amount
declines sharply in the
second half year partly
because that quota is gone.
• Quota is renewed annually 0
5
10
15
20
25
30
2011 2012 H1 2012 H2 2013 H1 2013 H2
in b
illio
n R
MB
Year
London Trade Finance Denominated in RMB
Letters of Credit Import Financing Export Financing Total
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FDI Flows into China Mainland
Source: MOFCOM
0
0.5
1
1.5
2
2.5
0
20
40
60
80
100
2009 2010 2011 2012 2013
in B
illio
n U
SD (
UK
, Ger
man
y)
in B
illio
n U
SD (
Ho
ng
Ko
ng)
Year
China's FDI
Hong Kong UK Germany
• 66% of FDI cash
flows from Hong
Kong in 2013
34%
39%
1%
4%
3%
2%17%
China's FDI Structure of 2014H1Distribution Service
Other Service
Agriculture
Computer &
Communication
Transportation
Manufactoring
Chemical Engineering
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OFDI Flows out of China Mainland
Source: MOFCOM
• 58% of OFDI cash
flows into Hong
Kong in 2013
0
2
4
6
8
10
0
100
200
300
400
500
2006 2007 2008 2009 2010 2011 2012 2013
in B
illio
n U
SD (
UK
, Ger
man
y)
in B
illio
n U
SD (
Ho
ng
Ko
ng)
Year
China's Outbound FDI
Hong Kong UK Germany
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Issuance of Offshore RMB Bonds
Source: Thomson Reuters
49%
20%
3%
4%
4%
20%
Offshore RMB bonds issued by countries
in 2010-2014
Mainland Hong Kong United States Germany South Korea Other
Total: $ 56.6 billion
• Dim Sum bond
Outstanding:
¥237.8 billion (2012)
¥309.2 billion (2013)
Growth: 30.0%
Issuance:
¥112.2 billion (2012)
¥116.0 billion (2013)
Growth: 3.4%
• Others
Includes UK, France,
Taiwan, Russia,
Singapore, etc.
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RDFII Quota Possessed around the Globe
Sources: SAFE
RQFII Quota (Oct. 30th 2014) In Billion RMB
Hong Kong 270
Taiwan 100
UK 96
Singapore 88
France 60
0
1
2
3
4
5
6
0
50
100
150
200
250
300
2011 2012 2013 2014.1
Gro
wth
Rat
e
in b
illio
n R
MB
RQFII Quota in Hong Kong
Hong Kong Growth
Strictly private & confidential
RMB Trading and Settlement
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0
1
2
3
4
5
0
1000
2000
3000
4000
5000
2010 2011 2012 2013
Gro
wth
Rat
e
in B
illio
n R
MB
HK Cross Border RMB Settlement
Cross Border RMB Settlement Growth
Source: HKMA, city of London
• Cross Border RMB
settlement increases
Faster than the growth
rate of trade
0
0.5
1
1.5
0
5
10
2011 2012 2013
In b
illio
n R
MB
Year
RMB Product Traded in London
Nondeliverable Product Spot FX
Forwards FX Swaps
FX Options
• Trading of non-
deliverable products are
decreasing, while the
opposite is increasing.
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China-Africa Cooperation
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China-Africa Trade and Cooperation
1950 1979 2000 2007 2009 2012 2013 2020
Beginning
Limited
Cooperation
Low trade volume:
US $12 million
Development
Forum on China-Africa
Cooperation (FOCAC),
50 African states
including South Africa,
Angola, Nigeria etc.
Trade volume: US
$10.6 billion
Fast Growth Special Loan for the
Development of African
SMEs (US $10 billion)
China became Africa's
largest trade partner
Trade volume: US
$91.07 billion
New High
Offer US $20 billion
loan in 3 years to
African states mainly
for infrastructure
projects
Trade volume: US
$209.6 billion
Adjustment
The reform and
opening-up policy
Trade volume: US
$0.82 billion
Speed-up
China-Africa
Development Fund.
Size reached US $5
billion
Trade volume: US
$73.57 billion
Expansion Period
60% of import from the 30
least developed Africa states
is duty free
Bilateral Investment Treaties
with 32 African states to
protect private investment
Trade volume: US $198.49
billion
New Stage
USD $400
billion
estimated
Source: National Bureau of Statistics of the People's Republic of China
2014
In-depth Cooperation
So far, South Africa,
Nigeria, Angola, Tanzania
and Kenya hold RMB as a
foreign exchange reserve
currency
Trade volume: US $104.77
billion for first half year
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China-Africa Trade and Cooperation
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China-Africa Trade Volume (2000-2013)Unit: US$ billion
Total Volume China Export China ImportSource: National Bureau of Statistics of the People's Republic of China
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China-Africa Trade and Cooperation
Source: Ministry of Commerce of the People's Republic of China;
National Bureau of Statistics of the People's Republic of China
0 10 20 30 40 50 60 70
Algeria
Egypt
Nigeria
Angola
South Africa
Top 5 Trade Partners in 2013 (US $ Billion)
Trade Volume
0
10
20
30
40
50
60
70
2009 2010 2011 2012 2013
Trade Volume of Top 5 Partners (2009-2013, US $ Billion)
Algeria Egypt Nigeria Angola South Africa
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China-Africa Trade and Cooperation South Africa
Trade structure optimization: China’s largest trade partner in Africa. In the past, China mainly imports minerals and primary goods, exports final goods and have trade surplus. In recent years, South Africa exports more high value-added goods, such as motor vehicles, engine parts, electronic transformer and wines, imports machinery electrical equipment and textile. China have trade deficit.
Bilateral investment: Investment expands from home appliance, mining and smelting to finance, telecommunication, new energy and infrastructure.
Future cooperation: South Africa is promoting the development of manufacturing industry and encourage Chinese companies’ investment. South Africa will support the industries that create jobs and produce value-added products, including automobile, steel, agricultural products processing etc. South Africa plan to invest US $72 billion in infrastructure, which is a great opportunity for Chinese companies.
0
20
40
60
80
2009 2010 2011 2012 2013
Trade with South Africa (US$ Billion)
Total Volume China Export China Import
Source: National Bureau of Statistics of the People's Republic of China
0
1
2
3
4
5
6
2009 2010 2011 2012 2013
China’s Cumulative OFDI to South Africa (US$ Billion)
The Stock of FDI to South Africa
39
Strictly private & confidential
0
10
20
30
40
2009 2010 2011 2012 2013
Trade with Angola (US$ Billion)
Total Volume China Export China Import
Angola
Trade: China’s second largest trade partner and largest crude oil supplier in Africa. China
mainly imports crude oil and minerals from Angola, while exports electrical equipment,
steel and textile.
Bilateral investment: Angola’ investment to China is much less than China’s investment
to Angola. Before 2014, China’s cumulative investment to Angola was more than US $8
billion, mainly in oil, infrastructure, agriculture, telecommunication etc.
Future cooperation: First, Angola will make efforts to improve infrastructure and
strengthen related cooperation with China. Second, Angola has large amount of land to be
cultivated while China can provide funds and technologies to increase agriculture
production. Third, Angola has large demand for industrial products after war. China will
support domestic companies to invest in Angola’s manufacturing industry.
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China-Africa Trade and Cooperation
Source: National Bureau of Statistics of the People's Republic of China
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China-Africa Trade and Cooperation
Nigeria
Trade: The biggest economy in Africa.
China’s third largest trade partner in
Africa. China mainly imports crude oil,
natural gas and agricultural products,
while exports motorcycle, machinery,
clothing, home appliances etc. Nigeria is
China’s largest export market for
motorcycle.
Bilateral investment: Investment involves
agriculture, textile, mining, radio and
television, home appliance etc. Chinese
companies established factories in Lecky
and Ogun economic and trade cooperation
zone.
Nigeria is the first African state to hold
RMB as a foreign exchange reserve
currency.
Future cooperation: More investment in
textile, clothing, home appliance
industries to meet Nigeria’s demand. More
cooperation in rice breeding tropical crops
and infrastructure construction.
0
5
10
15
2009 2010 2011 2012 2013
Trade with Nigeria (US$ Billion)
Total Volume China Export China Import
Source: National Bureau of Statistics of the People's Republic of China
0
0.5
1
1.5
2
2.5
2009 2010 2011 2012 2013
China’s Cumulative OFDI to Nigeria(US$ Billion)
The Stock of FDI to Nigeria
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Chinese Companies in Africa
Industry Company Location Project Other Info
Infrastructure
Sinohydro
Corporation
AlgeriaMina Irrigation Expansion Project
SOUF Water Supply
AngolaIrrigation projects
Kuito Water Supply Works
BotswanaDikgatlhong Dam Irrigation scheme
Lotsane Dam
DR CongoBusanga Hydropower Station
Copper and Cobalt Mining Project
SudanMerowe Hydropower Project
El Renk-Malakal Road Project
China Road and
Bridge Corporation
(CRBC)
Kenya Mtito Andei - Bachuma Gate Road
Ethiopia Addis Ababa Beltway
Mauritania Nouakchott Friendship port
China Railway
Construction
Corporation Limited
(CRCC)
NigeriaRailway Modernization Project $8.3 billion
Railway Cooperation Framework $13 billion
Algeria East- West Expressway Project
Strictly private & confidential
Industry Company Location Project Other Info
Energy
China national
petroleum
Corporation (CNPC)
Tanzania Gas pipeline project $1.2 billion
Niger Agadem Oil and gas project
China Petroleum &
Chemical Corporation
(Sinopec)
AngolaAngola Block 18 deep-water oil
project50% shares
Nigeria Block OML138 oil field (20% shares) $2.46 billion
Telecommuni
cation
Zhongxing Telecom
Ltd (ZTE)
Ethiopia Telecom network construction project Term 1, 2, 3
South
AfricaOptical transmission network
Angola Bengla Metropolitan area network
Huawei TechnologiesEthiopia
Telecom network construction project Term 3
Addis Ababa Light rail telecom system
Nigeria Rural telecommunication network
Mining
China National
Nuclear
Corporation(CNNC)
Namibia Langer Heinrich uranium mine (25%) $190 million
China Non-Ferrous
Metals and
Construction (CNMC)Zambia
Chambishi Copper Mines
Luanshya Copper Mines
43
Chinese Companies in Africa
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China-Russia Cooperation
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China-Russia Trade and Cooperation
1993 1999 2000 2001 2009 2010 2012 2013
Early Stage
Low trade volume
US $7.68 billion
New Beginning
Economic Recovery
2001-2005 Trade
Agreement
Trade volume: US
$8 billion
Development
China and Russia’s
Investment
Cooperation Plan
Trade volume: US
$38.75 billion
Fast Growth
Russia-China
Investment Fund
US $2 billion
Trade volume: US
$88.16 billion
Collapse
Asian Crisis
Unstable conditions
and poor economy
Trade volume: US
$5.72 billion
Stable Growth
Sino-Russian Treaty
of Friendship
Trade volume: US
$10.67 billion
Speed-up
China became Russia's
largest trade partner
Agreement on natural
gas supply from Russia
to China
Trade volume: US
$55.53 billion
New stage
Russia became
China’s third largest
crude oil exporter
China-Russia Expo
Trade volume: USD
$89.26 billionSource: National Bureau of Statistics of the People's Republic of China
2014
In-depth Cooperation
The PBOC and Central
Bank of Russia signed a
3-year bilateral currency
swap agreement of
RMB 150 billion
Trade volume: US $100
billion estimated
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China-Russia Trade and Cooperation
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China-Russia Trade Volume (2004-2013)Unit: US$ billion
Total Volume China Export China Import
Source: National Bureau of Statistics of the People's Republic of China
Strictly private & confidential
Minerals51.7%
Wood andWooden Products
13.4%
Chemical product9.5%
Mechanical and electrical products
6.8%
Live animal, live animalproduct
6.1%
Cellulose pulp; Paper4.7%
Others7.7%
Structure of China’s Import from Russia 2013
Minerals Wood and Wooden ProductsChemical product Mechanical and electrical productsLive animal, live animal product Cellulose pulp; PaperOthers
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China-Russia Trade and Cooperation
Source: Ministry of Commerce of the People's Republic of China
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China-Russia Trade and Cooperation
Source: Ministry of Commerce of the People's Republic of China
Mechanical and electrical products
45.5%
Textiles and raw materials
10.0%
Base metals and metal products
7.9%
Furniture, toys, miscellaneous products
6.5%
Light industrial products5.6%
Transportation equipment
5.1%
Others19.4%
Structure of China’s Export to Russia 2013
Mechanical and electrical products Textiles and raw materials
Base metals and metal products Furniture, toys, miscellaneous products
Light industrial products Transportation equipment
Others
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China-Russia Trade and Cooperation
Source: National Bureau of Statistics of the People's Republic of China
0
5
10
2008 2009 2010 2011 2012 2013
China’s Cumulative OFDI to Russia (2008-2013)
Unit: US$ Billion
China’s Cumulative OFDI to Russia
0
2
4
6
2008 2009 2010 2011 2012 2013
China's net ODFI to Russia(2008-2013)
Unit: US$ Billion
China's net ODFI to Russia
• Geographical distribution: big cities, e.g.
Moscow and St. Petersburg (tax advantages,
advanced market infrastructure and high ability
to pay); Siberia and the far east (rich natural
resources and near to China)
• Sectors: forestry, manufacturing industry,
mining industry and real estate
• Complementarity: China gets Natural resources
intensive products and Russia gets labor
intensive products
• Disadvantages: lack of labor force; Corruption
of judicial system and regulatory organizations;
unstable economic and political environment;
complicated market environment; different
culture and consumer habits
• Opportunities: sanctions against Russia
strengthen China-Russia relation; large
investment in infrastructure construction;
improvement of business environment
Strictly private & confidential 50
Chinese Companies in Russia
Industry Company Time Project Other Info
Energy
China national
petroleum
Corporation (CNPC)
2013.11 Yamal liquefied natural gas project 20% shares
Infrastructure
China Railway Group
Limited (CRG)2014.6
Cooperation agreement with
Roszheldorproject
China
Communications
Construction
Company Ltd.
(CCCC)
2014.8 Momorandum of Understanding
China Road and
Bridge Corporation
(CRBC)
2007.11 Infrastructure construction projectHaishenwai
& Sochi
Mining
Jilin HOROC
Nonferrous Metal
Group
2013.11 Mines in Kamchatka
China Metallurgical
Group Corporation
(MCC)
2010.12St. Petersburg cement clinker
production line
2012.3KIMKAN iron mine beneficiation
project
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Appendix
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Concept in RMB Internationalization• Qualified Foreign Institutional Investor - QFII
A program that permits certain licensed international investors to participate in China's mainland stockexchanges. The Qualified Foreign Institutional Investor program was launched by the People's Republicof China in 2002 to allow foreign investors access to its stock exchanges in Shanghai and Shenzhen.Prior to QFII, foreign investors were not able to buy or sell shares on China's stock exchanges because ofChina's tight capital controls. With the launch of the QFII program, licensed investors can buy and sellyuan-denominated "A" shares. Foreign access to these shares is limited by specified quotas thatdetermine the amount of money that the licensed foreign investors are permitted to invest in China'scapital markets.
• Dim Sum Bond
A bond denominated in Chinese yuan and issued in Hong Kong. Dim sum bonds are attractive to foreigninvestors who desire exposure to yuan-denominated assets, but are restricted by China's capital controlsfrom investing in domestic Chinese debt. The issuers of dim sum bonds are largely entities based inChina or Hong Kong, and occasionally foreign companies. The term is derived from the Chinese cuisinethat involves serving a variety of small delicacies and is especially popular in Hong Kong.
• Currency Swap
A swap that involves the exchange of principal and interest in one currency for the same in anothercurrency. It is considered to be a foreign exchange transaction and is not required by law to be shown ona company's balance sheet.
• Foreign Direct Investment – FDI
An investment made by a company or entity based in one country, into a company or entity based inanother country. Foreign direct investments differ substantially from indirect investments such asportfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange.Entities making direct investments typically have a significant degree of influence and control over thecompany into which the investment is made. Open economies with skilled workforces and good growthprospects tend to attract larger amounts of foreign direct investment than closed, highly regulatedeconomies.
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• Outward Direct Investment – ODI
A business strategy where a domestic firm expands its operations to a foreign country either via a Green field investment, merger/acquisition and/or expansion of an existing foreign facility. Employing outward direct investment is a natural progression for firms as better business opportunities will be available in foreign countries when domestic markets become too saturated.
• Real Effective Exchange Rate – REER
The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index. This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. All currencies within the said index are the major currencies being traded today: U.S. dollar, Japanese yen, euro, etc.This is also the value that an individual consumer will pay for an imported good at the consumer level. This price will include any tariffs and transactions costs associated with importing the good.
Concept in RMB Internationalization
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Concept of RTGS
• Real time gross settlement systems (RTGS) are specialist funds transfer systems where transfer of money or
securities takes place from one bank to another on a "real time" and on "gross" basis.
• Settlement in "real time" means payment transaction is not subjected to any waiting period. "Gross settlement"
means the transaction is settled on one to one basis without bundling or netting with any other transaction.
• This "electronic" payment system is normally maintained or controlled by the central bank of a country.
• The World Bank has been paying increasing attention to payment system development as a key component of
the financial infrastructure of a country, and has provided various forms of assistance to over 100 countries.
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Existing RTGS Systems
Country RTGS Country RTGS
Albania AECH Croatia HSVP (Hrvatski sustav velikih
plaćanja)
Angola SPTR (Sistema de pagamentos em
tempo real)
Czech Republic CERTIS (Czech Express Real
Time Interbank Gross Settlement
System)
Azerbaijan AZIPS (Azerbaijan Interbank
Payment System)
Egypt RTGS
Australia RITS (Reserve Bank Information
and Transfer System)
European union TARGET2
Bosnia and Herzegovina RTGS Hong Kong CHATS(Clearing House
Automated Transfer System)
Bulgaria RINGS (Real-time INterbank
Gross-settlement System)
Hungary VIBER (Valós Idejű Bruttó
Elszámolási Rendszer)
Brazil STR (Sistema de Transferência de
Reservas)
India RTGS, NEFT, IMPS
Canada LVTS (Large Value Transfer
System)
Indonesia BI-RTGS (Sistem Bank Indonesia
Real Time Gross Settlement)
China CNAPS (China National Advanced
Payment System)
Iran SATNA ( آنیناخالصتسویهسامانه )
Chile LBTR/CAS (Liquidación Bruta en
Tiempo Real)
Japan BOJ-NET (Bank of Japan
Financial Network System)
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Existing RTGS Systems
Country RTGS Country RTGS
Kenya KEPSS (Kenya Electronic Payment
and Settlement System)
Pakistan PRISM (Pakistan Real Time
Inter-Bank Settlement
Mechanism)
Korea BOK-WIRE+ (The Bank of Korea
Financial Wire Network,한은금융망)
Peru LBTR (Liquidación Bruta en
Tiempo Real)
Kuwait KASSIP (Kuwait's Automated
Settlement System for Inter-
Participant Payments)
Philippines PhilPaSS
Macedonia MIPS (Macedonian Interbank
Payment System)
Poland SORBNET and ELIXIR
Malawi MITASS (Malawi Interbank
Settlement System)
Russia BESP (Banking Electronic Speed
Payment System)
Malaysia RENTAS (Real Time Electronic
Transfer of Funds and Securities)
Romania ReGIS system
Mexico SPEI (Sistema de Pagos
Electrónicos Interbancarios)
Saudi Arabia SARIE (Saudi Arabian Riyal
Interbank Express)
Namibia NISS (Namibia Inter-bank
Settlement System)
Singapore MEPS+ (MAS Electronic
Payment System Plus)
New Zealand ESAS (Exchange Settlement
Account System)
South Africa SAMOS (The South African
Multiple Option Settlement)
Nigeria CIFTS (CBN Inter-Bank Funds
Transfer System)
Sri Lanka LankaSettle (RTGS/SSSS)
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Existing RTGS Systems
Country RTGS Country RTGS
Sweden RIX (Riksbankens system för
överföring av kontoförda pengar)
Turkey EFT (Electronic Fund Transfer)
Switzerland SIC (Swiss Interbank Clearing) Ukraine SEP (System of Electronic
Payments of the National Bank of
Ukraine)
Taiwan CIFS (CBC Interbank Funds
Transfer System)
United Kingdom CHAPS (Clearing House
Automated Payment System)
Tanzania TIS (Tanzania interbank settlement
system)
United States Fedwire
Thailand BAHTNET (Bank of Thailand
Automated High value Transfer
Network)
Zambia ZIPSS-Zambian Inter-bank
Payment and Settlement System
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Milestones in Hong Kong
2003-20062003: BOC(HK) is established as an RMB clearing Bank.
2004: Hong Kong banks are allowed to offer personal RMB services to local Residents.
2007-2009
2007: The first offshore RMB bond is issued at Hong Kong.
2008: HKMA signs ¥200bn currency swap with PBOC.
2009: The first offshore RMB sovereign bond is issued at Hong Kong.
2010-2011
2011: The first RMB IPO is listed on the Hong Kong Stock Exchange.
2011: The RQFII pilot scheme is launched in Hong.
2012-2013
2012: The first RQFII A-ETF is listed on the Hong Kong.
2013: HKMA launches an interbank reference rate for offshore Yuan.
2014
2014: Shanghai-Hong Kong Stock Connect is prepared.
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Milestones in London
2011
UK-China economic and financial dialogue planed to build a renminbibusiness center.
2012
London off-shore Renminbi business center construction project set off.
HSBC issued the first renminbi off-shore bond outside Asia.
2013
London was given a quota of ¥80 billion in RQFII.
Pounds directly traded with renminbi.
2014Bank of England was denominated as a clearing bank in London by PBOC.
The Renminbidenominated sovereign bond was first issued in London.
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Milestones in Frankfurt
2011
The first Renminbidenominated bonds by German companies were issued.
2012
Germany and China agreed to use more RMB and Euros to settle their trade.
2013
The resolution to build Frankfurt as a Renminbi business center was published.
2014Deutsche Bundesbank will establish Renminbisettling and clearing service in Frankfurt as the first hub for trades clearing outside Asia.
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Disclaimer
DisclaimerThis presentation is designed for MCM Partners customers exclusively for internal use of the client, and directly presented and delivered to the client (including the client's subsidiaries, the following referred to as the "Company"). This statement is intended to assist companies on the feasibility of a certain or several preliminary assessment of the potential transaction, the company has no right to publish or disclose to any other party all or part of this statement. This statement is for discussion purposes only, and can only be read in conjunction combined MCM Partners report. Unless a written consent is obtained from MCM Partners, this report or any content of it shall not be used for any other purpose.
Management information represented in this report is solely based on the company's forecast, our view, the above forecasts, the situation and perspectives may change at any time. This report is based on the information obtained from publicly available sources or provided to us by the company or a company representative, or a reviewed information by us. We assume that these data are accurate and complete without an independent review. In addition, we do not provide analysis on the company’s business, assets, stocks or its affiliates. MCM Partners does not evaluate nor represent the actual transaction value that may result or any legal, tax and accounting impact generated by it. Information contained in this report does not take into account the impact results from any potential changes in control over one or a number of potential transactions, of which the transaction(s) may have a significant impact on the valuation or other areas.
MCM Partners policy prohibits its employees to obtain business for consideration or inducement or reward, directly or indirectly, to provide favourable research rating or price target of a particular company, or to provide change in rating or price target. MCM Partners also prohibits its analysts to receive compensation from investment banks involved in the transaction, unless such participation is to achieve maximum benefits for the investors. This report does not constitute MCM Partners to underwrite, subscribe or placing any securities, provide or arrange credit or to provide any commitment to any other services.
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