Australia’s new window into China and beyond

Australia’s first renminbi trading hub will be the country’s ticket to increased global network connectivity and go beyond improving our trading relationship with China.

Almost buried in the announcement of Australia’s freshly signed free-trade agreement was a development that could, in the long run, prove to be one of the most important of the deal: the approval of Australia’s very own renminbi hub, based in Sydney.

"What [the hub] does is bring transparency and inject a liquidity into the domestic market."
Luke Marriot, ANZ global head of wholesale FX

It didn’t make it past some of the key experts in the area, though, who say it will allow trade between Australia and China to stretch further than ever before.

ANZ global head of wholesale FX Luke Marriot says although renminbi has been traded to some extent in Australia already, the practice was largely limited to imported trade-related transactions.

Companies, via the four major banks, are able to clear renminbi between themselves using the ASX’s settlement service AustraClear. But these doors are now open.

“By bringing the Bank of China into the RMB clearing hub,” Marriot says, “It gives [Australia] connectivity now into the global network.”

So, the opportunity for trade in renminbi in Australia is now much wider. Already, the Australian Securities Exchange has announced a heads of agreement with the PBoC to expand their strategic cooperation on the renminbi in local financial markets.

“What [the hub] does do is bring transparency and inject a pool of liquidity into the domestic market that our customers can now access with ease,” Marriot says. “And it helps them gain confidence in using renminbi as a trade settlement instrument.”

The hub will also provide traders with further clarity on when their payments reach their targets in China, according to multinational King & Wood Mallesons, through access to China’s real-time gross settlement system, CNAPS.

In a note on Sydney’s renminbi hub, K&WM said a similar arrangement that exists in Hong Kong allows traders access to details of client accounts through the PBoC, helping traders to manage their risk when settling large amounts of funds.

“Further, on a global level, the presence of an RMB clearing bank is international recognition of the importance of Sydney as an Asian financial centre,” the note says, “through an official link to the Chinese currency, its financial system and the participants in its financial marketplace.”

Increased use of renminbi in Australia will be a valuable tool in taking advantage of the new FTA, which will go beyond the obvious benefit to commodities, ANZ global head of RMB product Dennis Wong says, and into sectors such as education, agriculture and services.

“Under the FTA, inbound investment from China will be equal to the current treatment enjoyed by the US and Japan,” he says.

“Definitely it will encourage more investment from China and trigger more use of renminbi based on the growing investment flows.”

These flows from China are vital, Marriot says, from major Australian groups to smaller businesses.

“If you look at current trade flows between Australia and China, it’s approximately $148 billion per annum,” he says.

“Two-thirds of that is exports from Australia to China. Seventy per cent is denominated in US dollars.”

“Of that total flow, $50bn is imports from China, of which our SMEs and smaller companies are price-takers in invoices or import invoicing renminbi.”

Trade settlement in RMB is growing, Marriott says, but potentially not at the rate the PBoC would like to see. However, efforts like the FTA will provide a boost.

“Australia’s support to facilitate trade and investment flows in renminbi has been second to none, with the development of products, and our capabilities to support what’s been liberalised,” Marriott says.

This increased use will become more important as trade in the currency becomes prevalent globally.

And there is little doubt it is going to be big, Marriott says. Wong is confident enough to suggest the renminbi could be one of the world’s top three currencies within five years.

“There’s no doubt that the intent of the PBoC by granting direct Aussie trading licences wants to see direct trade in its currency,” Marriott says.

“With that intent, and the opening of the economy, reserve banks are already looking to hold RMB as a small portion of their prime currency reserve.”

“The Australian government and the Reserve Bank of Australia has made that commitment and made a public commitment in that they’ve already made that step.”

While the level of holding is small, Marriot says, it is likely to increase in the future, supported by the direct swap line that the RBA has with the PBOC to facilitate liquidity in the Australian market.

It’s this relationship that has led to the introduction of Sydney’s renminbi hub, a development that has ensured Australia’s window to the global renminbi network is now open.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

18 Nov 2014

Mike Smith: China FTA deal worth the wait

Mike Smith | Former Chief Executive Officer, ANZ

There is a saying that good things come to those that wait. The free trade agreement between Australia and China, ten years in the making, has been well worth the wait.

30 Sep 2014

Australian financial centres losing out even as plates tilt to Asia

Andrew Cornell | Managing Editor, bluenotes

As a Melbournian, the fact that Sydney is failing to deliver as a regional financial centre admittedly triggers a little schadenfreude. After all, they did steal the Olympics.

02 Oct 2014

What do affluent Asian customers want from their retail bank?

Sanjoy Sen | Managing Director for Retail Banking Asia Pacific

Asia's affluent middle class is growing rapidly. But more than that, as Asian customers become more financially savvy, they are demanding more dynamic and complex financial solutions and setting a new standard on how they want to be served by banks.