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Friday, March 13, 2015, 18:00

A financial spearhead in cross-border business

By Yang ziman and Liu wenwen
A financial spearhead in cross-border business

China Construction Bank’s Yunnan branch has signed collaboration agreements with eight financial institutions in Vietnam. (Provided to China Daily )

As a major initiative from the central government, the Silk Road Economic Belt has opened up overseas markets for China Construction Bank’s Yunnan branch.

Its clientele includes many major State-owned enterprises that are investing or expanding into South and Southeast Asian countries.

The bank has signed collaboration agreements with eight financial institutions in Vietnam and one each in Myanmar, Thailand and Malaysia, helping expand renminbi settlement channels in those countries.

“Finance should be the spearhead in cross-border economic exchanges between China and South and Southeast Asian countries,” said Luo Tao, chief manager of CCB’s Yunnan branch.

“There are no statistics showing how many Chinese companies are doing business overseas. If there were, it would be a reminder for banks that now mainly focus on clients in the domestic market that there is actually a large market (of  Chinese doing business) overseas.”

Many SOEs have set their sights overseas by integrating global resources. As early as 2002, China National Petroleum Co, China State Construction, China Harbor Engineering Co Ltd, among others, started investing in port construction, and gas and oil exploration, in Southeast Asia, particularly in Myanmar.

Luo said overseas expansion needs the financial support of Chinese banks because domestic companies do not feel secure putting their money in foreign banks.

And due to the lack of partnerships between Chinese and foreign banks, their renminbi settlement has to be done through underground exchange.

“In the case of Myanmar, for instance, Chinese companies had to transfer the money to the US dollar account of a Myanmar company in Hong Kong or Singapore, which was essentially an underground bank that would convert the money into kyat in Myanmar,” said Luo. “It was quite costly and dangerous because it usually involved large sums of money while the company’s background was not clear to the Chinese side.”

CCB’s Yunnan branch was the first bank in China to establish a renminbi settlement agreement with Myanmar.

To service the China-Myanmar oil and gas pipeline project by China National Petroleum, CCB’s Yunnan branch began talks with Myanmar Economic Bank to facilitate the renminbi settlement. After two years of negotiation, the agreement was finally reached in 2009.

Renminbi settlement services then opened one after another as the branch signed partnership agreements with more banks in neighboring countries.

“Now there is going to be an election in Myanmar. The candidates are looking forward to investment made into civil projects. They expect more help. Only the start of financial system,” said Luo.

But he said although Myanmar now has great demand for overseas investment, it feels that Chinese focuses too much on natural resource exploitation. With the general election approaching, the Myanmar government will expect more overseas support on projects concerning jobs and quality of life, said Luo.

Research by Hu Liequ, a finance professor at Yunnan University of Finance and Economics, indicates that renminbi’s internationalization should start with a regional approach.

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