1. 1. FX regulations stupefy Latam corp RMB adoption http://www.asiamoney.com/Article/3164631/FX-regulations-stupefy-Latam-corp-RMB-adoption.html?LS=EMS798723[3/8/2013 1:53:29 PM] FX regulations stupefy Latam corp RMB adoption March 07, 2013 From Chien Mi Wong Latin American corporates are keen to include the renminbi into their basket of currencies, but several regulatory hurdles domestically continue to hinder this development, say experts. Regulatory and capital controls that exist in Latin America (Latam) are impacting the adoption of the renminbi another partially-controlled currency by corporates in the region. Gala Embalagens, Brazils leading toy retailer, embarked on the countrys first renminbi- denominated import transaction last month after company owner Fabricio Pereira de Souza visited China for talks with his manufacturing partner, Delta Superior, according to HSBC in a press release on February 28. Under the terms of the transaction, Gala Embalagens imported Rmb732,000 (US$117,759) worth of toys from China paying for them in the Chinese currency rather than converting its payment to US dollars as the company was able to reap several benefits from this transaction. The benefit to the overseas buyer is that you would be able to take away the foreign exchange margin component, thereby increasing the opportunity for the buyer to get a discount as the buyer is dealing in the suppliers currency, said Bruce Alter, head of trade for China to Asiamoney PLUS in a telephone interview on March 6. As a result, another larger transaction is being planned in the near future between both parties, adds HSBC. As global growth shifts from developed to emerging markets, Brazilian companies are set to benefit from a rapid rise in South-South trade flows between Latam, Africa and Asia Pacific, especially as the Chinese government continues deregulate its currency and as companies become more familiar with the currency, highlight market participants. Bilateral trade increased about 30% annually since 2001 to reach US$241.5 billion in 2011, while Chinese investment in Latin America totaled US$10.1 billion in 2011, 16.8% of China's outbound investment last year, according to the State Administration of Foreign Exchange (Safe). The significant Sino-Latin American trading activity is the primary driver in renminbi adoption, said Brenda Torres, Miami-based Latin America trade services product manager for Citi to Asiamoney PLUS in an email reply to questions on March 6. We have spoken with several corporate clients across Latin America, who are interested in adopting the renminbi in their trading activity with Chinese counterparties by using the renminbi denominated letter of credit. The letter of credit (LC) is the most utilised trade settlement instrument in Sino-Latam trade, note transaction bankers. The instrument allows companies in Latam to issue, receive and settle renminbi denominated LCs with their Chinese trading partners, while mitigating risk associated with international trade. Latam take-up slow Despite the positive outlook on the adoption of the renminbi by global corporates, the take-up by Latam companies will still continue to lag behind other regions. In January, Asia accounted for Rmb235 billion of renminbi-denominated trade payment volumes, Europe and North America accounted for Rmb83 billion and Rmb7 billion respectively while Latam only recorded Rmb1 billion, according to data from Swift. 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2. 2. FX regulations stupefy Latam corp RMB adoption http://www.asiamoney.com/Article/3164631/FX-regulations-stupefy-Latam-corp-RMB-adoption.html?LS=EMS798723[3/8/2013 1:53:29 PM] Name Email address (not published) Comments All comments are subject to editorial review. All fields are compulsory. A flurry of recent currency interventions along with existing regulatory controls placed on certain currencies in the Latam region are the main reasons why the adoption of another non-convertible currency like the renminbi by corporates would be a little difficult, say experts. For example, the Brazilian finance minister Guido Mantega said earlier this year that his country was preparing additional measures to prevent a further climb in the value of the Brazilian real in addition to the already-existing capital controls introduced during 2010-2011. Argentina, on the other hand, has a managed local currency whose exchange rate is set by the central bank. We are beginning to see initial take-up but it is still very early days for Latam, said Michael Vrontamitis, head of product management east for transaction banking at Standard Chartered to Asiamoney PLUS. One reason is that the local currencies are very regulated. Its not as easy to manage as a fully convertible currency like the Hong Kong or Singapore dollar dealing out of Hong Kong, Singapore, London or New York. Its much easier to use US dollars in these locations. I think its taking a while for people to figure out how to use the renminbi, given the number of restrictions existing in the market place, he added. Additionally, unlike Hong Kong or Singapore that has closer proximity with the Mainland, Latam on the other hand has a closer relationship with North America, with the region continuing to be heavily influenced by the US economy and currency. At present, it is still difficult for the renminbi to grab a market share from US dollar in this region since the internationalisation of [the currency] is still in its fledgling stage, said Hong Kong-based Alicia Garca-Herrero, chief economist for emerging markets at BBVA Research. Second, a large portion of bilateral trade between China and Latin American countries is commodities, which, by international standards, are denominated in US dollar. This, to some degree, has inhibited the use of renminbi in the trade payment. While setting up a renminbi clearing back in the US time zone would certainly encourage more trade flows denominated in the Chinese currency in the region, other complementary measures should also be adopted to increase businesses acceptance of the currency. Chinas government can facilitate this process. In addition to expanding the investment use of renminbi by further liberalising the capital account, China authorities can set up specific programmes to encourage the renminbi financing in Latin America countries, such as renminbi trade finance and direct investment programmes, added Garca-Herrero. Additionally, any support from the governments in Latam in terms of making it easier to lend and invest the Chinese currency would definitely benefit renminbi-denominated trade flows, add analysts. China fully opened the renminbi for cross-border trade settlement in June 2012. HSBC Global Research estimates that approximately US$2 trillion, or half of Chinas trade with emerging markets will be settled in renminbi in the next three to five years, making the currency one of the worlds top three currencies at that time. Keywords: renminbi Latin America Fabricio Pereira de Souza Gala Embalagens Delta Superior Bruce Alter HSBC State Administration of Foreign Exchange Brenda Torres HK banks to cap Qianhai lending at Rmb312bn: Moody's | 08 Mar 2013 India DCM Bookrunner Ranking:07-03-13 YTD | 08 Mar 2013 High Yield DCM Bookrunner Ranking (Asia ex Japan): 07-03 ... | 08 Mar 2013 GFC has spurred Asian bond market integration: ADB | 08 Mar 2013 Securitisation boosts working capital efficiency: Citi | 07 Mar 2013 Post a comment looks like the countrys leaders are ready for it. But while the CSRC leads the way, a question mark hangs over its regulatory peers. debt-ridden telecommunications industry by raising foreign investor appetite for other telco companies amid a thirst for Indian corporate credit. MOST READMOST EMAILED China corps weigh financing options for US delisting Indonesia needs to speed up sukuk reforms opinion Chinas dim sum quotas still pose headaches opinion Corps should keep lean treasury functions UPDATED: Thailand builds Asias first inflation-linked curve 5th Annual Distressed Investing and Financial Restructuring Australia 07 March 2013-08 March 2013 Sheraton on the Park, Sydney, Australia Managing Risk in Asset Management 11 March 2013-12 March 2013 Hilton Hotel Singapore, Singapore Offshore Financial Investment & Wealth Management Summit Asia 2013 25 April 2013-26 April 2013 Crowne Plaza Hotel Century Park, Shanghai, China RELATED ARTICLES UPCOMING EVENTS AGNES CHUN agnes.chun@citi.com
3. 3. FX regulations stupefy Latam corp RMB adoption http://www.asiamoney.com/Article/3164631/FX-regulations-stupefy-Latam-corp-RMB-adoption.html?LS=EMS798723[3/8/2013 1:53:29 PM] About Asiamoney PLUS About Us Site map Contact Us Subscribe Free Trial Archive Advertise With Us Subscriber Terms & Conditions Privacy Policy Help Change font size: Help/FAQs Site map Contact Us Cookies My Asiamoney PLUS Email & Website Preferences Change Password Renew Subscription Saved Searches My Clippings Multi-User Licences RSS Related products & services Euromoney Conferences Euromoney Training Euromoney Seminars Institutional Investor Conferences All material is subject to strictly enforced copyright laws. Euromoney Institutional Investor (Jersey) Ltd 2013. I have read and agree to the Privacy Policy. I have read and agree to the Terms and Conditions. Go To Top Submit comment