Malaysia seeks RQFII status from China

This is written by my colleague Rupa Damodaran.

KUALA LUMPUR: Bank Negara is seeking application from China's central bank People's Bank of China (PBoC) for Renminbi Qualified Foreign Institutional Investor (RQFII) status to provide an alternative avenue for Malaysian investors to invest in onshore Chinese financial markets, said Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

She noted this move coincides with commercial entity Bank of China Malaysia being appointed as the renminbi clearing bank in Malaysia, earlier this year.

Over the last five years, the use of renminbi in Malaysia has grown rapidly, with the daily foreign exchange volume averaging at 6.7 billion renminbi.

Big names such as Khazanah, Cagamas, Axiata and Maybank have also issued renminbi bonds.

“The renminbi is no longer an Asian story. It has now become a global story,” Zeti said at the HSBC Reminbi Forum “Renminbi and China’s Global Future” yesterday.

Forum organiser HSBC, sees opportunities for companies in China to consider direct conversion of renminbi to ringgit in trading with Malaysia, following China's central bank latest move to weaken the renminbi.

Last week, the PBoC adjusted the renminbi against the US dollar by allowing it to weaken by nearly 4 per cent in two consecutive days. 

By taking into consideration the previous day's closing level, the daily 'fixing' of the exchange rate allows market forces to play a bigger role in the valuation of the renminbi.

HSBC Bank Malaysia Bhd country head, global trade and receivables finance Vincent Sugianto said companies in China have long been reluctant to settle trade using renminbi due to the strengthening of the Chinese currency against the US dollar. 

Since the one-off renminbi weakening last week, he thinks they may now take a different view. 

"If we offered them products in their own currencies, practically, the cost will be minimise for them to manage the hedging fund and exchange rate fluctuations. That is the intention," he said after the forum.

HSBC head of global emerging markets, FX research, global research Paul Mackel noted the one-off renminbi adjustment by China's central bank is not a devaluation but a further liberalisation move to make the renminbi more 'international'.

"It should not be read as PBoC purposely adopting a devaluation strategy. This move is consistent with China's drive towards a more market-driven exchange rate mechanism," Mackel said.

Since 2005, China has been steadily liberalising the renminbi. PBoC had been managing the roll out to its major trading partners with the intention of it being a global reserve currency alongside the US dollar.

In 2009, the renminbi trade settlement scheme was launched. Since then the portion of China's trade settled in renminbi has expanded every year. In  2010, it was just 2 per cent. Today, it had soared to a quarter. By 2020, Mackel expects half of China's trade to be settled in renminbi.

Last year, Bank Negara Malaysia's statistic revealed only 1.3 per cent of trade between Malaysia and China were invoiced and settled in renminbi. 

HSBC global head of global trade and receivables finance Stuart Tait, however, is optimistic that this number will expand dramatically in the years ahead.

He is confident Malaysia will increasingly use renminbi as a trade settlement currency to enhance bilateral trade with its biggest partner, China. This is because the use of renminbi will enable lower transaction costs, more favourable credit terms, discounts on imports from Chinese suppliers and rising exports as Chinese buyers express preference for use of their local currency.