RMB trade in Gulf Arab countries show huge potential

The chief executive of the Hong Kong Monetary Authority Norman Chan said here late Monday growing trade relations between the Gulf Arab oil states and China triggered a surge in transactions in Renminbi, adding the process was still in its early stages.

Chan, who stopped in Dubai on a road-show to promote Hong Kong as an offshore hub for Renminbi trade, said that 30 percent of China's trade including re-exports and offshore trade was intermediated through Hong Kong. While RMB trade in mainland China is restricted for foreign firms, "in Hong Kong there is no restriction for RMB funds transfers for foreigners and any firm can open an RMB account," said Chan.

He said that most of the trade from Gulf Arab countries in the Chinese currency was done by firms in the United Arab Emirates ( UAE) and Dubai in particular "because Dubai plays an important role as a gateway to all Gulf states," said Chan in an exclusive interview with Xinhua. Bilateral trade between the UAE and China grew 15-fold since 2000 to reach 37 billion U.S. dollars.

The volume in Renminbi trade conducted by local Arab firms and Chinese companies residing in the countries of the Gulf Co- operation Council GCC (Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman) was still low but it was growing fast, said Chan who added that trade between the UAE and China was expected to hit 100 billion U.S. dollars by 2015.

As of now export and imports done in RMB by the UAE account for only 4 percent of the Gulf state's total foreign trade "but chances are high that this figure will rise to double-digit rates in the coming years," said Chan.

According to the Dubai Chamber of Commerce, some 2,500 Chinese firms reside in Dubai. China's largest bank ICBC and the Bank of China have branches in the Gulf Arab sheikhdom. Earlier in February 2012, the China central bank signed a currency swap deal with the UAE worth 35 billion RMB (5.62 billion U.S. dollars). " This agreement is proof that both sides are interested in intensifying financial and commercial relations," said Chan.

Companies buying goods from China or those which export goods to China can trade, borrow, issue bonds in Renminbi and they can hedge easily through forwards and futures in the Chinese currency, explained Chan.

In order to benefit from growing trade relations the two largest UAE lenders Emirates NBD and National Bank of Abu Dhabi as well as Qatar's number one Qatar National Bank opened their first representative offices in mainland China in recent months. British banks Standard Chartered and HSBC also offer RMB transactions for GCC firms through their branches in Dubai.

But London, where 37 percent of the global foreign exchange trading deals are handled also established RMB trading in April 2012 in order to get a slice of the growing global RMB trade.

Regarding the role of Hong Kong, Chan said that the special administrative region was not only helping to conduct trade between offshore firms and onshore firms in mainland China, but also between China and other important trade hubs in East Asia such as Singapore, Kuala Lumpur or Jakarta, places with huge Chinese business communities. In fact 90 percent of China's RMB trade is done offshore, said Chan.

Daily turnover in RMB trade in Hong Kong grew from 5 billion Yuan in 2010 to 110 billion Yuan in 2011 and eventually reached 250 billion Yuan last year, said Chan.

The CEO of the Hong Kong Monetary Authority sees the city's role in offshore RMB for the GCC just at the beginning. The chances are high that Chan is right. Global consultancy McKinsey and Company predicts that bilateral trade between China and the Middle East will reach between 350 billion U.S. dollars to 500 billion U.S. dollars by 2020 with the GCC accounting for the lion' s share of this figure.