|
 He thought using the local currency for the purchases, worth several
million pounds every month, would be a selling point with his Asian
partners, a sign of good faith and presumably easier to do.
They would rather have dollars.
This is a familiar experience for hundreds of small and medium-sized
British companies which deal with Chinese factories and firms. It
also jars with the big headlines over the past year proclaiming the
emergence of the yuan as a major currency, and London as its main
international trading hub.
"We have tried but there is no appetite," says Brown, who has 19
years of experience in working closely with Chinese suppliers.
Flows among some of the major banks and speculative financial
investors have surged, and the yuan is an increasingly heavily used
trading currency in Asia. But its visibility in the day-to-day
economy in the West is next to nil.
Some of the thousands of British managers who regularly deal with
China say this is due to the difficulty of changing established
practices, the Chinese firms' need for dollars to pay off debt and
other international dues and a lack of faith in the current value of
the yuan, now in the throes of its second major devaluation since
last August.
"Historically they desperately wanted dollars and it has just
continued. We've had discussions about paying in local currency. But
they just have limited exposure in yuan so they would rather have
dollars," said Brown.
If you've played fairground or funfair stall games over the past few
years in Britain, the chances are your prize has been imported by
his company, Whitehouse Leisure, based in the town of Basildon just
outside London.
The biggest seller in the past year has been fluffy Minion toys,
made famous by the kids' movie "Despicable Me" and distributed to
points ranging from the Legoland theme park to small mobile funfairs
that set up around Britain.
It's good business and Whitehouse Leisure is a leading client of
AFEX, among the biggest in a group of London-based currency brokers
specializing in dealing for companies whose needs aren't quite large
enough to get the premium rates and services that banks offer top
corporates.
AFEX sales director James Collins says that of the 150 corporate
clients on his books, none is doing any major business in yuan due
to Chinese reluctance. "We've offered it, and lots of people have
looked at it, but there has just been no take-up from the other
side," he says.
SURGE
China has pressed ahead with efforts to internationalize the yuan in
the past year, regarding this as a crucial element of its future
place in the global economic and financial hierarchy.
Data from banking network Swift show the yuan, also known as the
renminbi or RMB, is now the fifth most-used currency for
international payments. The big bank-to-bank trading platforms
report a surge in its usage that often makes it among a handful of
their most traded currencies.
A decade of huge dollar earnings for Chinese companies, however,
allied to ultra-low U.S. interest rates since 2008, has reinforced
the greenback's day-to-day usage in investment and trade.
The International Monetary Fund's admission last year of the yuan
into its benchmark currency basket should soon mean the Chinese unit
makes up closer to 10 percent of global central bank reserves.
[to top of second column] |
However, even after two years of substantial growth, the yuan is
worth just 2 percent of all international payments compared with 52
percent for the dollar, and it is used for less than 0.5 percent of
trade in goods and services.
Chinese companies still hold around $1 trillion of short-term debt
in U.S. currency and are repaying it, and the interest, in billions
of dollars monthly. Much of that money comes in to offshore accounts
and never lands in China.
Another AFEX client, Bob Latham, pays around $100,000 every month
for the reinforced composite and glazing materials he buys from
Chinese factories to sell on to clients in the West.
"We did offer to pay the factories in RMB. It's in our interest to
make it as easy as possible for them to sell to us, so that we're
the easiest route to market," he says.
"But it all tended to get a little bit crazy. They have foreign bank
accounts and that's where they handle all their foreign sales. So
when we tried to pay in yuan they changed it into U.S. dollars, and
then they transfer it from U.S. dollars back into RMB. So we
couldn't see any logic or benefit."
RATE PLAY
All of that is hard to square with the flood of corporate promotion
of the yuan, chiefly by banks such as HSBC, Standard Chartered, Citi
and others for whom it is a rare growing market at a time when
trading operations and profits have been slashed.
The Swift numbers point to a disparity between Asia and the rest of
the world. The yuan is used, for example, for about 7 percent of
payments between Japan and China, compared with the 2 percent global
figure.
Still, the yuan offers better returns than dollars, compensating for
higher conversion costs due to the wider gap between buy and sell
rates.
Bankers say trade in the yuan in London has boomed in the past six
months and that bigger corporate clients have been paying in the
currency for over a year.
"We're doing a lot of it now," says Tobias Davis, who sells hedging
and options products to bigger corporates for Western Union in
London.
"Especially on forwards and options there's a lot of benefit in
settling direct in yuan. Interest rates are above 4 percent so while
you're holding the position you get that interest rate carry. That
offsets the marginally wider spreads you will get on the yuan
compared to the dollar."
But he also acknowledges Chinese clients remain keen to receive
dollars. "The assumption since last year has been they will devalue
the yuan further. So at least right at the moment the Chinese
corporates don't want to be holding yuan while that happens - they
would much rather have dollars."
(editing by David Stamp)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
