The increasing global use of China’s currency – the Renminbi (RMB) – is one of the most significant developments shaping global financial markets. RMB internationalisation is occurring within the context of China’s managed transition towards a more market-driven economy, which necessitates greater mobility and market-based pricing of capital. Since 2009, the Chinese authorities have accelerated the process of financial reform through currency internationalisation, capital account opening and the gradual liberalisation of domestic interest rates.
The RMB’s transition to a global currency
The internationalisation of the RMB has outpaced other areas of financial reform, entering an accelerated phase from 2014, with new clearing banks appointed in financial centres across Asia, Europe, Canada and Latin America.
Since the first pilot scheme to allow cross border RMB trade settlements was established in 2009, and expanded to include all Chinese provinces and global counterparties in 2011, the redenomination of cross-border trade to RMB has grown rapidly. At the end of 2014, 21.6% of China’s cross-border trade was denominated in RMB, from a negligible level just a few years earlier. Since October 2013, the RMB has been the second most used currency in trade finance, based on SWIFT data.
The RMB is now fully convertible on the current account, but also across an increasing number of items on the capital account. Accordingly, corporations, investors and financial institutions have a growing variety of channels and instruments available to transact in RMB, whether in China or in a growing number of offshore locations.
Redenomination of cross-border trade in RMB may bring efficiency improvements, reduced transaction costs and discounts in some cases. The recent relaxation of regulatory restrictions makes it easier for multinational companies to manage cash across borders and move funds from their China operations for inclusion in their regional or global liquidity pools.
Chinese policymakers have also continued relaxing capital account controls to allow more direct and portfolio investment flows into and out of China. China has long been the world’s largest developing country recipient of foreign direct investment (FDI), however the country is becoming increasingly prominent as an exporter of capital, or overseas direct investment (ODI). Meanwhile, a variety of structures and solutions are now available for companies to raise funds in RMB markets, ranging from debt issuance in the offshore RMB bond market to offshore RMB borrowing by registered entitites in the Shanghai Free Trade Zone and elsewhere in China.
Onshore, China’s domestic markets are becoming more accessible to foreign investors. The most significant recent milestone in the liberalization of portfolio investment flows was the launch of the Stock Connect programme in late-2014, initially linking the Hong Kong and Shanghai stock exchanges (with plans to eventually cover the Shenzhen Stock Exchange and additional asset classes). This mutual market access scheme allows participants in the two cities to invest in each other’s stock markets without the need for institutional quota. Progress in capital account opening is also evident from the expansion of the RMB Qualified Foreign Institutional Investor (RQFII) program to new offshore centers in Europe, North America, the Middle East, Latin America and Australia – and the expansion of the total quota for both QFII and RQFII programmes.
China’s role in global trade
China is now the world’s largest exporter of goods and second largest importer. By the measure of gross domestic product at purchasing power parity, China’s economy is already the biggest in the world. By the more conventional measure of nominal GDP, it will likely be the world’s largest by around 2020.
Chinese economic growth has decelerated in recent years, however, partly due to the central government’s efforts to rebalance the economy from an investment and export led model to a consumption led growth model. Whereas China’s economy expanded by more than 14 per cent in 2007 and 10 per cent as recently as 2010, the official growth target for 2015 is approximately seven per cent.
Even with an economic slowdown, China will remain a powerhouse in global trade. The sheer scale of China’s cross-border exports and imports will mean that China will remain the single biggest contributor to global trade in absolute terms. Although it no longer possesses the low-cost advantage in every segment, the nation’s industrial sector is moving up the value chain to gain market share in higher value goods. Additionally, the increasingly important domestic market is absorbing a growing share of Chinese manufacturing output.
The use of RMB in trade settlement has been the most fundamental building block in the internationalisation of China’s currency. China’s cross-border trade volumes settled in RMB were up 42% in 2014 from 2013 levels, which in turn were up 57% from 2012 levels. While RMB trade settlement has increased rapidly in recent years, there is considerable upward potential. RMB trading has increased not only for use of settling trade in goods, but notably also for services trade and foreign direct investment, both in and out of China.
China‘s focus on more balanced growth and domestic structural reforms will gradually lead to lower savings and increase consumption, which should translate into greater purchasing power for goods and services from the rest of the world. From a longer term perspective, China will remain a growth engine for the world economy, albeit with a changing composition in supply and demand drivers.
RMB – Deregulation timeline (to end 2014)
Why adopt the RMB?
Switching to RMB Payments: Checklist of Practical Considerations for Corporate Treasurers
Deutsche Bank's RMB Capabilities
Deutsche Bank is a pioneer in the global use of China’s currency, providing clients with a full range of innovative RMB solutions, both offshore and onshore.
The Global Renminbi Solutions of Deutsche Bank
Asset & Wealth Management
Deutsche Asset & Wealth Management (Deutsche AWM) has been engaged as an investor in China ever since the market began to open up internationally, and is today one of the world’s leading experts on providing active and passive investment solutions for Chinese exposure. Deutsche AWM is one of the largest China A-Shares ETF providers in Europe and the US. This includes the first RMB Qualified Foreign Institutional Investor (RQFII) ETFs approved in Europe and the US linked to the CSI300 Index, which consists of the 300 stocks with the largest market capitalisation and liquidity from the universe of A-shares listed in mainland China. In March 2015, Deutsche Asset & Wealth Management Investment GmbH was confirmed as the first asset manager to be granted a RQFII license in Germany.
Furthering its commitment to the asset management business in China, Deutsche Bank made a 19.5% strategic investment in 2005 in Harvest Fund Management, a local asset management firm and one of China's leading investment managers, and subsequently increased its stake to 30% in 2008. The Wealth Management business has provided onshore financial advisory services to high net worth individuals through the Shanghai branch of Deutsche Bank China since 2006. From Deutsche Bank’s Shanghai and Hong Kong branches, private clients enjoy access to the bank's global resources and investment expertise.
Cash and Liquidity Management for Corporates
The RMB has rapidly emerged as a corporate treasury management currency, enabling companies to reduce costs, improve efficiency, manage risk and enhance access to China. Deutsche Bank offers a comprehensive range of products and services to address client demands for global treasury management using the RMB. Our key capabilities include local, cross-border, and offshore RMB payments and collections, RMB cash management solutions; current and time deposits, and paperless cross-border payment services.
RMB accounts and associated products are available in a number of global locations, while our FX4Cash platform allows clients to leverage existing local currency accounts to access a broad range of solutions for cross-border payments. Deutsche Bank can also facilitate cross-border intercompany lending in RMB. Deutsche Bank was among the first foreign banks to introduce automated RMB cross-border cash sweeping services to clients in China and was the first bank to execute a two-way cross-border sweep in Shanghai under PBoC’s nationwide scheme. We work closely with our clients and regulators to remain at the forefront of various pilot programs that are broadening the scope for cross-border business.
Useful information for your RMB payments (for corporates in Germany)
The processing of payments in Chinese RMB (CNY / CNH) is subject to the People’s Bank of China’s (PBOC) detailed regulatory requirements. Deutsche Bank is able to answer all questions concerning payment transactions to and from China. Below we provide an overview of the most important regulations that you need to comply with to ensure your CNY payments can be processed quickly and securely, allowing you to concentrate on your core business.
Cash Services for Financial Institutions
Deutsche Bank provides a suite of products to serve the onshore and offshore RMB payment needs of financial institutions via our Hong Kong and Shanghai branches. The service model for our RMB product is comparable to mainstream currencies (EUR and USD Clearing) and reduces complexity to enable simple turnkey implementation. Our experienced customer service team possesses a full understanding of the regulatory requirements for RMB payments, and has a track record in ensuring efficient payments processing and the swift resolution of inquiries.
Our RMB services complement our flagship USD, EUR and multi-currency payment products for financial institutions, as well as our FX4Cash platform. Deutsche Bank is a market leader in financial institution payments and has been ranked the top provider of liquidity to global and Asian FX markets for the past seven consecutive years (Euromoney Global FX Survey 2005 - 2014). In addition, we were the first bank to launch the electronic trading of CNH via Autobahn FX.
Deutsche Bank can provide a variety of structures and solutions for companies to raise funds in RMB markets or through inter-company channels. We offer RMB overdrafts and working capital loans in China as well as fixed asset loans and project financing. Our strong global network of banking relationships enables us to realise large-scale syndication opportunities across a range of RMB loan products. We have been involved in the offshore RMB fixed income market for clients including local and foreign corporates, financial institutions and public sector institutions. Our specialists worldwide can structure, arrange and serve as book running manager for RMB fixed income transactions.
Deutsche Bank's ability to offer a broad range of products and services is significantly enhanced by its involvement in Zhong De Securities Company Limited, a joint venture between Deutsche Bank and Shanxi Securities Co. Ltd.. Zhong De received a business license from China Securities Regulatory Commission (CSRC) in 2009, which allowed the company to commence investment banking services in China's attractive domestic securities market.
Custody and Investor Services
Deutsche Bank’s Investor Services business is at the forefront of regulatory change in China and is staffed by a highly experienced and responsive account management team. Deutsche Bank holds a Qualified Foreign Institutional Investor (QFII)/RMB Qualified Foreign Institutional Investor (RQFII) custodian license, and is one of the few foreign banks to have been awarded a bond settlement agency license by the People’s Bank of China (PBOC). This allows us to support our clients with custody services in China‘s onshore exchange market, the interbank bond market, as well as in offshore markets for RMB bonds.
Deutsche Bank provides a full suite of custody services from pre-trade to post-trade. This may include assistance with the investment application processes, account administration, safekeeping and settlement, or corporate actions & proxy voting. We are also able to partner with our global markets and fund management businesses to provide a one-stop-shop solution encompassing product design, ETF market making, offshore RMB FX conversion and liquidity and bond execution services.
Globally, Deutsche Bank’s Investor Services team works with financial intermediaries such as global custodians, broker/dealers and prime brokers as well as buy-side firms and other institutional clients that want to focus on achieving their business goals. To help them, we provide custody, clearing & settlement, agency securities lending and fund services in more than 30 markets around the world.
Markets Products and Services
Deutsche Bank has always been highly committed to the development of RMB markets through all facets of foreign exchange, credit, equities and equity-linked products, exchange-traded and OTC derivatives and structured products. We were the first to allow electronic execution via our online trading platform, Autobahn FX, and the first to launch an investable and non-bank proprietary offshore RMB bond index, the S&P-DB ORBIT Index. Deutsche Bank was also an early mover in executing onshore RMB FX option trades, CNH cross-currency swaps, and CNH forwards. In November 2014, Deutsche Bank was a first-day participant in the innovative Shanghai-Hong Kong Stock Connect Scheme, providing trade execution, custody, and settlement services through the Bank’s integrated solution.
As a leading global FX bank, we can offer key currency crosses with both onshore and offshore RMB across multiple time zones. Deutsche Bank's dedicated CNH trading desk manages a significant amount of daily trading volumes, while regular, dedicated research serves to keep investors and corporates informed of the latest developments and trends shaping the market. We participate in the China interbank bond market, enabling you to capture higher yields, diversify your portfolio and manage liquidity more effectively. In 2014 the bank became one of the first market makers for direct trading of the RMB against the Euro and the GBP.
To manage currency and interest rate risks associated with trade, financing and investing in RMB – both offshore and onshore – Deutsche Bank provides a range of familiar risk management products, including cross-currency swaps, FX forwards, FX options, interest rate swaps and bespoke structured risk management products. We provide onshore FX and rates trading via Deutsche Bank Shanghai, as well as access to a full suite of derivatives in offshore RMB markets via our trading desks in key financial centres. This is complemented by our electronic FX platform, which allows clients to take control of their FX requirements with state-of-the-art, yet easy-to-use functionality.
With the RMB now accounting for 21% of China’s total cross-border trade (at end 2014), almost all cross-border trade transactions with companies in Mainland China can now be settled in RMB. It is today possible to manage payment and financing processes across the entire trade lifecycle using RMB, whether it is in the form of import/export letters of credit, documentary collection and open account payments, or associated trade finance. To enable our clients’ success, Deutsche Bank can provide a full-suite of RMB trade services with incorporated FX solutions.
Deutsche Bank in China
Deutsche Bank first established its presence in China in 1872 with the opening of an office in Shanghai. Today Deutsche Bank is a locally incorporated bank in China, with branch offices in Beijing, Shanghai, Guangzhou, Tianjin, Chongqing, Qingdao and a sub-branch in China (Shanghai) Pilot Free Trade Zone.
Deutsche Bank – committed to China for more than 140 years
The bank celebrated its 140 years of commitment to clients in China in 2012. In 2008, the Bank's regional hub in Hong Kong SAR celebrated its 50th anniversary, and in 2010, Deutsche Bank offices moved to new premises at the International Commerce Centre, a landmark building in Hong Kong.
In the Mainland, Deutsche Bank has securities representative offices in both Beijing and Shanghai. Deutsche Bank Shanghai is located in the International Finance Centre Two (Two ifc) in the thriving Lujiazui area, an important financial district in Pudong, Shanghai. The Deutsche Bank Tower, located at China Central Place, in Beijing's Chaoyang District, serves as headquarters for Deutsche Bank China and other related bank businesses.
Deutsche Bank currently employs over 500 staff in Mainland China and more than 1,200 in Hong Kong. Through rapid organic growth and strategic investments, Deutsche Bank in China and Hong Kong now has business interests in corporate advisory and capital markets, transaction banking, private and retail banking, as well as asset and wealth management.
Deutsche Bank (China) Co. Ltd. (Deutsche Bank China) was launched in 2008 to engage in a broad range of banking services including foreign exchange, Renminbi (RMB) deposit and lending, government and financial bonds, and derivatives. Deutsche Bank China successfully processed its first RMB cross-border cash remittance from Beijing and issued its first letter of credit denominated in RMB from Shanghai in September 2010. These and many more transactions demonstrate that Deutsche Bank China is well positioned as a cross-border settlement bank for the Chinese currency.
Deutsche Bank's ability to offer a broad range of products and services was significantly enhanced in 2009 when Zhong De Securities Company Limited, a joint venture between Deutsche Bank and Shanxi Securities Co. Ltd, received a business license from China Securities Regulatory Commission (CSRC), which allowed the company to commence investment banking services in China's attractive domestic securities market.
The bank has always been highly committed to the development of the RMB through all facets of foreign exchange, capital markets, credit trading and transaction banking. The Bank has a well-established sales, trading and research platform, which covers macro economics, fixed income, credit, foreign exchange, equities and derivatives thereof. Deutsche Bank started local bond trading operations in 2004 and is widely recognised as a leading market participant. It has worked closely with regulators in introducing new financial market instruments, and has been an innovator in such areas as local currency swaps, structured deposits, and introduction of wealth management products. The bank is increasingly well-positioned to assist Chinese companies in their offshore expansion through its capabilities in the capital markets, advisory services, trade facilitation, FX, hedging and all other corporate banking services globally.
As one of the leading investment banks in China, Deutsche Bank has completed significant transactions in all major industries, including technology, oil and gas, financial institutions, real estate, consumer, chemicals and power. In addition to working with some of the most prominent Chinese companies, Deutsche Bank has assisted international companies in their groundbreaking cross-border M&A transactions in China.
Deutsche Bank also has a substantial retail interest in China. In 2006, the Bank acquired a stake in Huaxia Bank - a nationwide bank listed on the Shanghai Stock Exchange - and has since increased its stake to the regulatory cap of approximately 19.99%.
Furthering its commitment to its asset management business in China, Deutsche Bank also made a 19.5% strategic investment in 2005 in Harvest Fund Management, a local asset management firm and one of China's leading investment managers, and subsequently increased its stake to 30% in 2008.
The Wealth Management business has provided onshore financial advisory services to high net worth individuals through the Shanghai branch of Deutsche Bank China since 2006. From Deutsche Bank’s Shanghai and Hong Kong branches, private clients enjoy access to the bank's global resources and investment expertise.
As part of its global corporate responsibility programme, Deutsche Bank is fully committed to contributing to the communities in which it operates. Deutsche Bank has, in the past few years, committed several million Euros to community projects in Mainland China and has collaborated with organizations such as the Half the Sky Foundation, INCLUDED and Teach For China.
For more information about Deutsche Bank´s history in China, please click here.
Deutsche Bank in China: Key Differentiators
Proven Track Record & Long Term Commitment:
- Early entrant into the China market in 1872
- Serving over 1000 global client groups in China
- Consistent investment in branch expansion, best-in class people and technology
- Number 1 in EUR clearing in China, Number 2 in USD clearing in China
Connectivity to Market and Regulators:
- Proactive advisory and consulting services to help navigate the complex environment of regulatory issues and other industry trends
Optimal payment processes:
- Direct linkage with CNAPS and one of the widest clearing networks in China
- Best in class online banking, web based globally used tool with state of art security standards
- Best ERP Integration capability in China, over 80 group clients implemented, majority using our in-house SAP interface program
- First bank to embed the FX conversion for cross currency payments into our payment platform db direct internet
Effective liquidity management:
- Market leader in customized liquidity management solutions, e.g. tax saving local currency cash pooling
- More than 70 Cash pools implemented since 2006; largest liquidity management solution includes 63 legal entities across China
- Leading position in 3rd party bank account reporting and payment services with the top 5 local Chinese banks via host-to-host and/or SWIFT linkup
Treasury and Risk Management:
- Full range of regulatory approved products, e.g. forward, options, cross currency swaps