doing business in hong kong your privileged connection to china
TRANSCRIPT
Doing business in Hong Kong Your privileged connection to China
Some basics on Hong Kong
Hong Kong is part of China since 1997
It’s status as a Special Administrative Region is laid down in the Basic Law under the principle “1 country 2 systems”
GDP (bn USD)
GDP/cap (th USD)
2010 ∆ real GDP
Population (millions)
Area (th km²)
Hong Kong 226 32 5.7% 7 1 PR China 5.745 4 10.3% 1.340 9.597 US 14.624 47 2.7% 311 9.629 EU 16.107 32 1.8% 501 4.325 Czech Rep.
260 26 2.3% 10 79
Why do business in Hong Kong ?Hong Kong as a safe haven for your China investment
If you think “going into China” with your business, then also consider “going via Hong Kong”
Hong Kong offers a few advantages that are not necessarily present in case of a direct entry into China
Hong Kong is
part of China“1 country, 2 systems”
(Basic Law)
Hong Kong isin the ranking of
free economies (WSJ and Fraser Institute)
1st
Hong Kong is lowest tax misery country in the world (Forbes tax misery index)3rd
Hong Kong is financial centre in the world
(GFCI-9, March 2011)3rd
Free flow of capital Fully convertible currency No lending restrictions Full range of financial services State of the art business infrastructure Companies can be set up in a few days English as the general business language
Easy and low tax regime Double Tax Agreements (since recently also with CZ)
Hong Kong as prime offshore Renminbi centre China’s 12th 5Y Plan reconfirmed Hong Kong’s crucial role in
the development of Mainland China CEPA free trade agreement with Mainland China
Legal system under ‘rule of law’ with higher legal certainty
Why do business in Hong Kong ?Hong Kong as a safe haven for your China investment
Consequently it is common to see the following structure being implemented by European companies pursuing business opportunities in Mainland China
European business
Opportunities in China
HQ in Europe
Rep.Office / WFOE in PRC
Hong Kong
Holding Co in HK
100%
100%
Suppliers and clients in PRC
Trade
Trade
What do we offer you in Hong Kong ?KBC Hong Kong branch as an enabler for your business in Hong Kong
Getting started
• Your company setup in Hong KongWe maintain good relations with different company secretarial firms and consultants that can help you in setting up the right structure for your needs
• Your account opening at KBC Hong KongFor your account opening in Hong Kong, we liaise with your company secretary in Hong Kong and with your relationship manager in CSOB
Physical presence in Hong Kong is not required to open accounts with KBC Hong Kong
Once your company is constituted with all necessary documents, we open accounts within 3 days
Limited but relevant service offer for your Hong Kong business
• Cash management and payments• Working capital and investment loans• Trade Finance• Treasury• Corporate Finance advisory
• NEW!: RMB services
What do we offer you in Hong Kong ?NEW! : KBC offering RMB services
If you were in Hong Kong recently, you cannot have missed the importance of Hong Kong as an offshore centre for the internationalisation of the Renminbi
7
The internationalisation of the RMB - Why? Many good reasons for China to encourage the international use of RMB
“The dollar trap” refers to the 1.8trn FX reserves in USD making China overly dependent on the American dollar, causing FX and liquidity risks. Encouraging the international use of the RMB should reduce the FX inflow
“Sharing the RMB risk with the world” by progressively translating the Chinese claims on the outside world into RMB
If China has the ambition to join the US and EU as a key player in the governance of the international monetary system, this is a crucial step
Also, making Shanghai an international financial centre competing with Wall Street and The City by 2020 will be difficult without this evolution
Empirical evidence shows the international rise of a currency goes in parallel with the economic power of a country (£, $, DEM, ...)
It is an anomaly that the worlds largest exporter is not using its own currency to settle that trade. If the USD might be “punching above its weight” relative to the US economy, the opposite is true for the RMB
Not “If?” but “When?”The internationalisation of the RMB will happen
and is actually already long overdue
Not “If?” but “When?”The internationalisation of the RMB will happen
and is actually already long overdue
End 2010, China’s total FX reserves mount to 2.6trn USD. Source: CIA Factbook.
Potential roadmapThe different stages are interdependent. E.g. accumulation of RMB outside the Mainland
will support demand for RMB denominated investment products, while the availability of liquid RMB investment opportunities will encourage a wider adoption of RMB for trade
Potential roadmapThe different stages are interdependent. E.g. accumulation of RMB outside the Mainland
will support demand for RMB denominated investment products, while the availability of liquid RMB investment opportunities will encourage a wider adoption of RMB for trade
8
The internationalisation of the RMB - How? There’s a commonly accepted view on how currencies internationalise ...
Source for 2020 volume estimates: Central Policy Unit Chatham House, London.
9
The internationalisation of the RMB - How? ... but this case is nevertheless unprecedented in many ways
This is also why China is using Hong Kong as a “testing ground” for the internationalisation of the RMB and as “a firewall” against undesired effects on the Mainland
The terms “testing ground” and “firewall” were coined in relation to Hong Kong’s role at the publication of China’s 12th 5 Year Plan
10
The internationalisation of the RMB - When? It is clearly happening, already today, in Hong Kong ...
RMB deposits in HK(in bn) 45
40
35
30
25
20
15
10
5
01H 20112010200920082007
Gross issuance RMB bonds in HK (in bn)
800
700
600
500
400
300
200
100
01H 201120102009
Global RMB trade settlement (in bn, HK part in %)
Picture taken at a tram stop in Hong Kong, showing a part of HSBC’s omnipresent RMB marketing campaignSource for chart data: HKMA
500
600
0
400
300
200
100
end 2010
mid 2009
mid 2011
mid 2010
end 2009
end 2008
Of which 73% HK
Of which 80% HK
end 2011
11
The resulting RMB realities you currently face Pick your field, according to your needs
OFFSHORE ONSHORE
CNH
• Offshore participants only
• Free circulation offshore
• FX rate USD/CNH differs from USD/CNY
• Currently CNH more expensive than CNY (strong demand faced with limited supply)
• Spread will continue to exist as long as “flow back” and arbitrage opportunities are restricted
CNH
• Offshore participants only
• Free circulation offshore
• FX rate USD/CNH differs from USD/CNY
• Currently CNH more expensive than CNY (strong demand faced with limited supply)
• Spread will continue to exist as long as “flow back” and arbitrage opportunities are restricted
CNY NDF• Offshore non deliverable forward market• Linked to CNY FX but settled cash in USD
CNY NDF• Offshore non deliverable forward market• Linked to CNY FX but settled cash in USD
CNT
• Trade related CNY (max 3 months!)
• FX rate linked to CNY (CNT-CNY fungible)
• RMB agent bank needed (onshore correspondent bank or BOC in HK or MC)
CNT
• Trade related CNY (max 3 months!)
• FX rate linked to CNY (CNT-CNY fungible)
• RMB agent bank needed (onshore correspondent bank or BOC in HK or MC)
CNY
• Onshore participants only
• FX rate fixed by PBoC
CNY
• Onshore participants only
• FX rate fixed by PBoC
FLOW BACK REGULATEDFLOW BACK REGULATED
TRADE SETTLEMENT
SCHEME
TRADE SETTLEMENT
SCHEME
CNY Forward market
CNY Forward marketSome arbitrageSome arbitrage
Limited retail flows between HK and MainlandLimited retail flows between HK and Mainland
12
Why would you use the RMB trade settlement scheme Access to a larger pool of trading partners at potentially better margins
Trade settlement in RMBWhat is in it ?
For you as a corporate For your Chinese trade partner
Case by case assessmentto see whether the advantages of trade settlement in RMB outweigh the costs
Case by case assessmentto see whether the advantages of trade settlement in RMB outweigh the costs
Larger pool of potential trading partners in RMB
Partner might agree to sell lower / buy higher in RMB
Will have to manage the FX risk
+
!
+
Lower transaction costs
No FX risk
Increased competitive position
…
+
+
+
We offer this inKBC Hong Kong KBC Singapore
13
What do we offer you to exploit the RMB opportunity? We cover most operational needs of a corporate in HK and SG
You want to
Open an RMB current account (for CNH and CNT)
Buy and sell RMB forwards for Hedging purposes Speculation
Settle trade transactions in RMB In open account Under LC
Discounting of RMB usance LC In RMB In FX
Invest in RMB Deposits Bonds and Equities
Borrow in RMB Short Term Advance in RMB Trade finance products Bond and equity issuance
1000 HKD
HKD account
1000 HKD
1000 HKD
HKD account
1000 HKD
14
Opening a RMB account with KBC You see 1 RMB account, we manage 2 sub-accounts
1000 EUR
EUR account
1000 EUR
1000 EUR
EUR account
1000 EUR
1000 CNY
CNY account
1000 CNY
CNY account
What you will see as aKBC Hong Kong corporate client
Just another account with one balance in CNY (CNY is the only ISO code for RMB)
Two sub-accounts with each a balance and a potential use. CNH can be used freely outside China. CNT can be used for settling trade with China but CNT nature expires after 3 months
What we will manage as your corporate bank
250 CNH250 CNH
750 CNT750 CNT
Existing KBC Bank Hong Kong clients can open CNY accounts by sending us an
instruction letter and after acceptance of the new account rules
New KBC Bank Hong Kong clients can open CNY accounts based on the same
documentation process as for any other currency. KBC Bank Hong Kong closely liaises
with the European branches and with local secretarial firms in Hong Kong to ensure a
fast process that puts as little documentation burden as possible on the client.
Physical presence in HK is not required.
€ $ £
FX account
€ $ £
€ $ £
FX account
€ $ £
CNY
CNY account
CNY
CNY
CNY account
CNY
CNY
CNY account
CNY
CNY account
15
I want to pay my Chinese supplier in RMBPossible with the CNT in your account with KBC Hong Kong
€ $ £
FX account
€ $ £
€ $ £
FX account
€ $ £
YOUProvide us with• Payment instructions• Evidence of the trade
related nature of the transaction
• Either you have CNT available (max 3 months old)
• Or you exchange FX into CNT
KBC Bank HK
CNHCNH
CNTCNT
YOUR SUPPLIER
• Needs to be an authorised Mainland Designated Enterprise allowed to settle exports in RMB
• Bank will return the money if your supplier does not meet the conditions
Local bank
TRADE TRANSACTION
RMB clearing bank Bank of China in Hong Kong
Similarly, KBC Bank HK can issue import RMB LC’s towards your Chinese supplier. The settlement of the LC will be done with your available CNT balance or after converting FX into CNT.
€ $ £
FX account
€ $ £
€ $ £
FX account
€ $ £
CNY
CNY account
CNY
CNY
CNY account
CNY
CNY
CNY account
CNY
CNY account
16
I receive RMB from my Chinese buyerPossible to receive it as CNT on your account with KBC Hong Kong
€ $ £
FX account
€ $ £
€ $ £
FX account
€ $ £
YOUProvide us upfront with evidence of the trade related nature, if not we must qualify incoming RMB as CNH
• Either you keep CNT (max 3 months)
• Or convert into FX• Or transfer outside
(making it CNH)
KBC Bank HK
CNHCNH
CNTCNT
YOUR BUYER
• Bank will return the money if your supplier does not meet the conditions
Local bank
TRADE TRANSACTION
RMB clearing bank Bank of China in Hong Kong
Similarly, if you are the beneficiary of an RMB LC from your Chinese buyer, the settlement will be done on you CNY account with KBC HK and will be qualified as CNT.
If you would like more information on our service offer, please do not hesitate to contact us.
Stefaan StappersGeneral Manager KBC Hong Kong branch+852 2879 [email protected]
Jo Vander StuyftEuropean Desk Corporate Banking+852 2879 [email protected]
Andre LiuEuropean Desk Corporate Banking+852 2879 3412 [email protected]
Questions and Answers