HSBC streamlines cross-border yuan trade settlement in China

HONG KONG, March 26 (Reuters) - HSBC hasimplemented a yuan cross-border trade settlement solution for aFortune 500 company in China, providing a centralised approachto cash management, which is expected to lead more foreigncorporates to adopt the yuan in international trade.

The move enables Chinese subsidiaries of the global leaderin power and automation technologies to use yuan to settlecross-border payments and collections with their parentcompany's overseas treasury centre.

It not only significantly reduces foreign exchange exposureand optimises liquidity management for the company, but sets aprecedent for other multinational companies (MNC) that will helpboost circulation of the yuan outside mainland China.

"This is a treasury management technique practiced by manylarge MNCs around the world and we are pleased to be the firstbank to extend this to RMB," Kee Joo Wong, HSBC's head of globalpayments and cash management in China, said in an email reply toReuters.

Before the new model was introduced, the company had tosettle each transaction with its overseas counterparty directly,resulting in transaction costs and a lack of central monitoringand control over the payments process at the group level, Wongsaid.

Transactions from individual entities overseas are nowconsolidated twice a month by the treasury centre for paymentsinto China. HSBC China will then disburse the funds to eachsubsidiary in China as payments of export goods and services.

China initiated the yuan trade settlement scheme in 2009,aiming to promote the international use of its currency. Itaccelerated the expansion pace at the beginning of the year,taking up about 16 percent of the world's No.2 economy's totaltrade in February.

HSBC expects 30 percent of China's total trade flow, oraround 50 percent of bilateral trade with emerging marketcountries, to be settled in yuan within the next three years,which would make it one of the top three currencies used inglobal trade.

The yuan is ranked the 13th most widely used world paymentcurrency after surpassing the Russian rouble in January with anall-time high market share of 0.63 percent, according to globaltransaction services organization SWIFT.