Transcript KBC Group Organisation

Doing business in Hong Kong
Your privileged connection to China
Some basics on Hong Kong
Hong Kong
PR China
US
EU
Czech Rep.
GDP
GDP/cap
(bn USD) (th USD)
226
32
5.745
4
14.624
47
16.107
32
260
26
2010 ∆
real GDP
5.7%
10.3%
2.7%
1.8%
2.3%
Population
(millions)
7
1.340
311
501
10
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”
Area
(th km²)
1
9.597
9.629
4.325
79
Hong Kon
part of PR
(SAR stat
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
st in the ranking of
free economies
1
(WSJ and Fraser Institute)
Hong Kong is
financial centre in
rd
the world
3
(GFCI-9, March 2011)
Hong Kong is
lowest tax misery
rd
country in the world
3
 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)
(Forbes tax misery index)
Hong Kong is
part of China
“1 country, 2 systems”
(Basic Law)
 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
HQ in Europe
Trade
100%
Hong Kong
Holding Co in HK
Trade
Opportunities in China
100%
Rep.Office / WFOE in PRC
Suppliers and clients in PRC
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 Kong
We 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 Kong
For 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
The internationalisation of the RMB - Why?
Many good reasons for China to encourage the international use of 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
International
standing
Empirical evidence shows the international
rise of a currency goes in parallel with the
economic power of a country (£, $, DEM, ...)
FX risk
...
Natural
evolution
“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
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
End 2010, China’s total FX reserves mount to 2.6trn USD. Source: CIA Factbook.
6
The internationalisation of the RMB - How?
There’s a commonly accepted view on how currencies internationalise ...
• Use RMB as a currency to settle trade transactions between importers
and exporters from and to Mainland China
TRADE
CURRENCY
• Volume trade settlement in RMB estimated at 6 to 7 trillion RMB by 2020
• Use RMB as a currency for investment purposes through RMB deposits,
RMB bonds, RMB IPOs, etc.
INVESTMENT
CURRENCY
• Estimated volumes by 2020
•RMB deposits in HK: > 6 trillion RMB
•Offshore RMB bonds: 6-7 trillion RMB
• RMB as a fully convertible international reserve currency
RESERVE
CURRENCY
• Empirical evidence suggests that 1% point increase in country’s share in
the world’s GDP translates in a 0.5% point increase of worldwide central
banks reserve holdings in that currency
• Today, no meaningful holdings of domestic RMB debt by foreigners,
while > 30% of US and UK government debt is held outside the country
Potential roadmap
The 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
Source for 2020 volume estimates: Central Policy Unit Chatham House, London.
7
The internationalisation of the RMB - How?
... but this case is nevertheless unprecedented in many ways
No opening of China’s capital account
Foreign ownership of Chinese assets and
cross-border capital flows remain tightly
controlled as China fears massive inflow of
speculative ‘hot money’ bringing along
volatility and inflationary pressure
Still an emerging country
China is the first emerging
country to go on this path. In the
past, only fully developed
countries attempted to
internationalise their currency
A net exporting country
As a net exporter China faces a
difficult challenge in getting its
currency into foreign hands
through trade
UNPRECEDENTED
BALANCING ACT
As a net exporting emerging
country encouraging the
international use of RMB while
keeping control on crossborder capital flows
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 12 th 5 Year Plan
8
The internationalisation of the RMB - When?
It is clearly happening, already today, in Hong Kong ...
600
Gross issuance RMB bonds in HK
(in bn)
RMB deposits in HK
(in bn)
500
45
800
40
700
35
600
30
400
400
20
100
10
200
5
100
0
0
end mid
2008 2009
end
2009
mid
2010
end
2010
mid
2011
end
2011
Of
which
73%
HK
300
15
200
Of
which
80%
HK
500
25
300
Global RMB trade settlement
(in bn, HK part in %)
0
2007
2008
2009
2010
1H 2011
2009
Picture taken at a tram stop in Hong Kong, showing a part of HSBC’s omnipresent RMB marketing campaign
Source for chart data: HKMA
2010
1H 2011
9
The resulting RMB realities you currently face
Pick your field, according to your needs
OFFSHORE
ONSHORE
CNH
CNT
• Trade related CNY
(max 3 months!)
• Offshore participants only
• Free circulation offshore
• FX rate linked to
CNY (CNT-CNY
fungible)
• 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
• Onshore participants only
• FX rate fixed by PBoC
• RMB agent bank
needed (onshore
correspondent bank
or BOC in HK or MC)
TRADE
SETTLEMENT
SCHEME
FLOW BACK
REGULATED
Limited retail flows between HK and Mainland
CNY NDF
• Offshore non deliverable forward market
• Linked to CNY FX but settled cash in USD
Some arbitrage
CNY
Forward market
10
Why would you use the RMB trade settlement scheme
Access to a larger pool of trading partners at potentially better margins
Trade settlement in RMB
What is in it ?
For your Chinese trade partner
For you as a corporate
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
…
Case by case assessment
to see whether the advantages of trade
settlement in RMB outweigh the costs
11
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
We offer this in
KBC Hong Kong
KBC Singapore
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Opening a RMB account with KBC
You see 1 RMB account, we manage 2 sub-accounts
What you will see as a
KBC Hong Kong corporate client
Just another account with one balance in CNY
(CNY is the only ISO code for RMB)
1000 EUR
1000 HKD
1000 CNY
EUR
account
HKD
account
CNY
account
1000 EUR
1000 HKD
250
CNH
750
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.
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
13
I want to pay my Chinese supplier in RMB
Possible with the CNT in your account with KBC Hong Kong
YOU
Provide us with
• Payment instructions
• Evidence of the trade
related nature of the
transaction
YOUR SUPPLIER
TRADE TRANSACTION
• Needs to be an
authorised Mainland
Designated
Enterprise allowed to
settle exports in RMB
€$£
CNY
FX
account
CNY
account
CNY
€$£
€$£
CNH
CNY
account
FX
account
CNY
€$£
RMB clearing bank
CNT
• Either you have CNT
available (max 3
months old)
• Or you exchange FX
into CNT
KBC Bank HK
Bank of China
in Hong Kong
• Bank will return the
money if your
supplier does not
meet the conditions
Local bank
Similarly, KBC Bank HK can issue import RMB LC’s towards your Chinese supplier. The settlement of
the LC will be done with your available CNT balance or after converting FX into CNT.
14
I receive RMB from my Chinese buyer
Possible to receive it as CNT on your account with KBC Hong Kong
YOU
Provide us upfront
with evidence of the
trade related nature, if
not we must qualify
incoming RMB as CNH
YOUR BUYER
TRADE TRANSACTION
€$£
CNY
FX
account
CNY
account
CNY
€$£
€$£
CNH
CNY
account
FX
account
CNY
€$£
RMB clearing bank
CNT
• Either you keep CNT
(max 3 months)
• Or convert into FX
• Or transfer outside
(making it CNH)
KBC Bank HK
Bank of China
in Hong Kong
• Bank will return the
money if your
supplier does not
meet the conditions
Local bank
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.
15
Questions and Answers
If you would like more information on our service offer, please do not hesitate to contact us.
Stefaan Stappers
General Manager KBC Hong Kong branch
+852 2879 3388
[email protected]
Jo Vander Stuyft
European Desk Corporate Banking
+852 2879 3372
[email protected]
Andre Liu
European Desk Corporate Banking
+852 2879 3412
[email protected]