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Trade and Investment: New Opportunities for the RMB

In the last six months, the continuous appreciation of the RMB has brought exchange rate cost pressure to foreign trade enterprises. With the trend, RMB settlement as a fundamental strategy to reduce corporate exchange rate risk is accelerating. Since February 4, the notice on further optimizing cross-border RMB policy to support stable foreign trade and stable foreign investment, jointly issued by the people's Bank of China, the Ministry of Commerce and other six departments, will be formally implemented to promote the facilitation of RMB settlement of trade and investment at a higher level, and further simplify the cross-border RMB settlement process. RMB Settlement Accelerated In 2020, the RMB exchange rate has been rising. Sun Guofeng, Director of the Monetary Policy Department of the People's Bank of China, introduced on January 15 that the RMB exchange rate against the US dollar at the end of 2020 will appreciate 6.9 percent from the end of the previous year, and the RMB will appreciate about 4 percent against a basket of currencies. "The continued appreciation of the renminbi, coupled with rising raw material prices and soaring shipping costs, continues to erode the profits of foreign trade companies." Shi Minxue, deputy general manager of the export department of Ningbo Ruyi Co., Ltd., said in an interview with a reporter from the International Business Daily. In the face of this situation, the pace of guiding RMB settlement at the national and local levels is accelerating. By the end of 2020, the amount of cross-border RMB settlement was 4.12 trillion billion yuan, up 26.2 percent year-on-year, accounting for 40.1 percent of local and foreign currencies ...... This is the economic and financial data of Guangdong 2020 released by the Guangzhou Branch of the People's Bank of China on January 14. Guangzhou Branch has expanded the pilot project of higher-level facilitation of cross-border RMB from the Pilot Free Trade Zone to the Greater Bay Area, and 563 Guangdong enterprises excluding Shenzhen have been included in the list by the end of 2020. In 2020, the RMB will become the second largest cross-border settlement currency in Guangdong and surpass the US dollar to become the largest cross-border settlement currency in the Guangdong-Hong Kong-Macao Greater Bay Area. As a major foreign trade province, it is of great significance for RMB to become the largest cross-border settlement currency in Guangdong. From a national perspective, since the domestic geographical scope of RMB settlement for cross-border trade was expanded to the whole country in 2011, RMB cross-border settlement has been on the fast lane, which has brought benefits to enterprises to avoid exchange rate risks. Especially this year, RMB cross-border settlement has once again "accelerated" on the fast lane. On January 4, the "Notice on Further Optimizing Cross-border RMB Policies to Support Stabilizing Foreign Trade and Stabilizing Foreign Investment" was released; on January 5, the People's Bank of China and the State Administration of Foreign Exchange The bureau decided to raise the macro-prudential adjustment coefficient for overseas lending by domestic enterprises from 0.3 to 0.5, and the upper limit for overseas lending by domestic enterprises was raised accordingly. Industry insiders believe that at a time when China is vigorously promoting the internationalization of the RMB, the convenient cross-border RMB settlement policy can effectively promote the use of cross-border RMB in more scenarios. Foreign trade enterprises have ushered in a favorable opportunity to promote the use of RMB settlement, which will further enhance the willingness of foreign customers to use RMB settlement. According to the "2020 RMB Internationalization Report" released by the People's Bank of China, in 2019, the total amount of cross-border RMB receipts and payments by banks on behalf of customers was 19.67 trillion billion yuan, an increase of 24.1 percent year-on-year, which means that the cross-border use of RMB continued to grow rapidly against the trend, and the amount of receipts and payments reached a record high. The renminbi ranks fifth among the major international payment currencies, with a market share of 1.76 per cent. In addition to the favorable policy environment, there is another favorable factor for China to promote RMB settlement: the global willingness to hold RMB and RMB assets continues to rise. Bank of China's latest Offshore RMB Index (ORI) for the first quarter of 2020 shows that the intention to hold RMB assets abroad has further increased, thanks to relatively stable exchange rate performance, relatively attractive asset returns and relatively stable capital markets. At the end of the first quarter of 2020, the balance of RMB deposits in most offshore RMB markets grew, and the scale of RMB assets included in official reserve assets by foreign central banks was equivalent to $221.5 billion, a record high. The new format is concerned Looking at the "Notice" jointly issued by the six departments, there are many highlights, including supporting the cross-border RMB settlement of new trade formats. New businesses such as cross-border e-commerce are developing rapidly as a result of the new coronary pneumonia epidemic. The latest statistics released by the General Administration of Customs show that in 2020, new forms of foreign trade will flourish, with cross-border e-commerce imports and exports of 1.69 trillion billion yuan, an increase of 31.1 percent, becoming an important force in stabilizing foreign trade. The need for related companies to reduce exchange costs through RMB settlement is also more urgent. Lin Zhiyong, director of the Xinguang Digital Trade Research Institute, said in an interview with the International Business Daily that at present, cross-border retail platforms mainly collect money through credit cards on third-party payment platforms, and then carry out foreign exchange settlement and domestic collection services in China. The new policy is conducive to cross-border e-commerce platforms to carry out RMB settlement business. At the same time, Lin Zhiyong said bluntly that at present, cross-border RMB payment mainly meets the needs of bulk trade, and with the rapid development of new business type, RMB settlement of cross-border e-commerce should receive more attention. At present, the main difficulty in using RMB settlement on cross-border e-commerce platforms lies in the difficulty of pricing in RMB and the fact that foreign payment companies have not yet made extensive use of RMB for settlement. To solve these problems, relevant departments need to launch a package of cross-border RMB payment solutions, such as actively promoting Chinese payment tools abroad, and encouraging foreign payment platforms to open cross-border RMB payment functions.