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Chinese exporters may sell cheaper to those who trade in their currency

Publication Date : 19-03-2014


Malaysian companies should take advantage of the willingness of Chinese exporters to give discounts for goods traded in the yuan.

HSBC global markets corporate sales head Tan Yew Yan said Chinese exporters would consider selling their goods cheaper to those who trade in the Chinese currency. They often sell their goods to Malaysians at prices which have been hedged against foreign exchange (forex) losses.

“They factor in another 5% to 10% into their prices. When we asked the Chinese exporters if they would give a discount to customers who buy in the yuan, one-third of them said they would consider a 3% to 5% discount on the prices,” he said.

He said this at the Kuala Lumpur and Selangor Chinese Chamber of Commerce and Industry’s CEO Forum titled “Asean: The Future is Here”.

He advised Malaysian companies to ask for two quotations – one in US dollars and the other in the yuan.

“The internationalisation of the yuan is not to replace the US dollar. It is to complement it as a reserve currency. Companies should use it aside from the US dollar in their trade with China, as they would have more to benefit,” he said, noting that China was Malaysia’s largest trading partner.

Another advantage of Malaysian companies having operations in China was that they would be able to convert all inter-company trade to the yuan, reducing the many rounds of forex conversions when using the US dollar, he said.

Tan added that greater liberalisation of the capital account would also lead to more opportunities for companies to diversify into China, increasing liquidity and reforming the financial landscape.

“It’s not about selling a product. It’s about the internationalisation of the currency of the world’s largest trading country,” he reiterated.

Tan pointed out that there was a mismatch between the size of China’s economy and the forex turnover. “If tomorrow, the yuan is fully convertible, then it would be the third-highest turnover currency in the world.”

In 2013, 18% of China’s trade was already yuan-denominated, a big progress considering it was about 12% in 2012.

“Eventually, what the People’s Bank of China wants is to make the yuan a reserve currency,” he said, adding that some international banks had already started holding bonds in that currency, and that the yuan was ranked among the top-10 in forex turnover last year.

Trade between Malaysia and China has shown strong growth year-on-year. Last year, 30% of Malaysian exports were bound for China and 60% of its total imports were from China.


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