A Westpac Institutional Bank report entitled Tapping into the Renminbi opportunity claimed that despite the benefits of dealing directly in renminbi, years of familiarity with dealing with the US dollar are unlikely to be replaced immediately.
“Many businesses prefer the certainty of the familiar over the promises of the new,” said the report.
“Others may not understand that changing to renminbi can be a source of competitive advantage, or that their ability to negotiate discounts and settlement terms may reduce operating costs – with flow-on effects to working capital management.”
Westpac’s national head of trade for commercial banking, Andrew Tait, said while AUD-RMB transactions are growing at 248 per cent each year, “many customers are not aware of the specific discounts they may be able to negotiate if they are prepared to invoice and settle in renminbi”.
Mr Tait said this may be holding businesses back, with potential discounts in the range of 2 to 3 per cent.
The report said an invoicing survey of Chinese and Australian enterprises conducted by the Centre for International Finance and Regulation (CIFR) found Chinese corporates typically add 5 per cent to their quotes to hedge against unfavourable exchange rate movements.
The survey found Australian companies were concerned about the costs of deviating from US dollar contracts and cited unwillingness of trading partners to settle in renminbi and difficulty in accessing hedging products as major drawbacks.
The report said research from the Australian National University shows “Australian and Chinese corporates appear to be waiting for each other to initiate a change to invoicing in bi-lateral trade”.
“Seventy per cent of Australian corporates are waiting for Chinese firms to request renminbi invoicing and 76 per cent of Chinese corporates are waiting for Australians to accept it,” said the report.
Westpac general manager of Asia, Balaji Swaminathan, said while establishing deeper financial and trading relationships with China is not without its challenges, “it will be enviable as China continues to liberalise its financial market”.
“From Westpac’s point of view, sitting on the sidelines and observing the transformation in China is not an option,” said Mr Swaminathan.
“Now is the time to help our customers understand the current state of play and look for ways to grow their business through China’s more accommodative markets and freely traded currency.”
