The signing of the Australia-China FTA yesterday has been accompanied by the opening of a trading hub for the Chinese currency the renminbi (RMB) in Sydney.
Westpac says this is a huge additional opportunity for local business, as it means that Australia not only gains access to Chinese markets, but there is a material improvement in the efficiency with which enterprises in both nations can transact via the RMB trading hub.
The RBA said yesterday that it would “provide a more direct means of facilitating cross-border RMB transactions between Australian and Chinese entities.”
Westpac, which last week issued a special report “Tapping into the renmimbi opportunity”, agrees:
Benefits ranging from more favourable pricing, the ability to be more flexible with their Chinese trading partners and improved customer relationships should lead to better access to new opportunities. And for Chinese companies, reduced foreign exchange risk, improved trade terms and benefits from appreciation and depreciation should add to their competitiveness and strengthen their relationships with their Australian counterparts.
In response to the RBA announcement, CEO Gail Kelly said Westpac would be a Foundation Bank to the RMB hub and that “as a result of this development, the currency can move freely throughout our region to open up more of China’s economic opportunities for our customers across Asia, Australia and New Zealand.”
This is important because the opening up of the Chinese economy globally and the establishment of trading hubs in other countries has been an important driver of increased transaction volumes in the RMB.
Westpac estimates that this trend will continue into the future which means that Chinese business will want to deal in RMB – something this hub will facilitate for Australia-China two-way trade.
Compared to the overall ambition of the FTA the liberalisation of AUD-RMB trade may only be a small part of the puzzle, but the ease of transacting – and hedging – this allows will have a multiplier effect on trade ties, capital flows and business oportunities.
It’s great news for business.