Companies missing 5% discounts by failing to trade in renminbi

New research has revealed UK SMEs in particular are missing out on potential trade benefits by failing to support renminbi transactions.

The research, conducted by HSBC, showed that just 11% of those surveyed said they had conducted business transactions in the renminbi (RMB), despite 55% of Chinese businesses saying they would offer discounts of up to 5% to trading partners who were willing to do so.

This indicates that UK firms are failing to optimise strong prospects for export growth said HSBC. Of the 101 British firms surveyed, 81% reported international growth in 2012 and 79% of UK SME’s expect further growth next year.  This was the most confident response from the seven markets covered by the survey.

Peter McIntyre, HSBC’s UK head of Trade said: “This survey highlights a need for UK businesses to learn more about how using RMB could help them reduce costs and give them competitive advantage when trading with China.”

He continued: “It is clear that Chinese businesses are prepared to share the benefit gained from removing the currency risk from within their cost base.”

A lack of confidence and awareness of the benefits of trading in China’s local currency are the key reasons behind a general reluctance from firms around the world to trade in RMB said HSBC.

Less than 1 in 10 businesses globally feel they have a “very good” understanding of RMB and 38% said they could not perceive a clear benefit in establishing facilities to trade in RMB.

There is also a feeling that trading in RMB will increase complexity, with 51% of companies saying that they would be willing to do so if the procedures were simplified.

Companies who are already trading in RMB are very confident of growing trade with China according to this research. Almost three quarters (73%) of all companies using the Chinese currency expect their RMB cross-border business to grow during the next 5 years, with a quarter (26%) estimating growth of more than 10% in 2013.

The main drivers for those using the RMB were to mitigate foreign exchange risk (48%), meet demand from their counterparties (46%) and convenience (42%).

Around 700 international businesses took part in the bank’s survey, including firms from Australia, China, Germany, Hong Kong, Singapore, UK and USA.