Companies expect teething troubles in settlement process
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Companies have raised concerns over the usage of the yuan in cross-border trade due to limited settlement services provided by overseas and domestic lenders, analysts said.
"Domestic and overseas companies have raised doubts on whether banks can provide facilitated yuan settlement services to improve liquidity in the companies, reduce forex risk and increase investment return as well as efficiency in capital management," said Shen Hanliang, Director at the Cash Management and Trade Department of Standard Chartered Plc.
The growth of cross-border trade between the mainland, Hong Kong, Taiwan and other Asian economies intensified the need for yuan settlement services.
"Expanding financial services does not only depend on domestic companies," said Xu Sheng, director at the Capital Management Department of JPMorgan Chase & Co.
"Overseas companies need to be persuaded to use yuan as the settlement currency," Xu added.
A recent poll conducted by HSBC Holdings Plc showed that 69 percent of companies surveyed said they want banks to provide advanced cross-border settlement services in the mainland, Hong Kong and Taiwan; 57 percent prefer banks to have branches in the mainland, Hong Kong and Taiwan; and 49 percent said that they require "one-stop" financial services from opening an account to settling fund transfers for cross-border settlement.
In the second quarter of this year, domestic commercial banks settled cross-border trades in yuan worth 48.66 billion yuan ($7.14 billion), an increase of 1.65 times from the first quarter.
Hong Kong and Singapore are currently dealing with yuan settlement services with both sharing 87 percent of the total business volume, said the People's Bank of China (PBOC).
In order to broaden cross-border businesses, 50 percent of the companies in the HSBC poll said they plan to start branches in Hong Kong while 36 percent hope to expand their wings to Taiwan.
HSBC predicted that by the end of 2012, about 40 to 50 percent of cross-border trade value may be settled in yuan.
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