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Published 02 April 2013 10:00, Updated 29 April 2013 12:37
Australian SMEs are adopting the Chinese currency faster than large firms, an HSBC survey finds. Photo: Bloomberg
Corlette Designs opened an office in Shanghai last May. The Sydney-based agency that specialises in signage, graphic design and branding for the hotel and commercial industries wanted to cut costs for its Australian and Chinese clients by locating some production and technical functions in China.
Registering a local company also allowed Corlette Designs to issue invoices in yuan. It had been operating in China for four years and had been invoicing clients in US dollars.
“This was a massive breakthrough,” creative director Camille Corlette says. “It’s really seen very favourably by our Chinese clients. For them to be able to pay an international consultant with international creativity in their own local currency was a huge win for them.”
Revenue from China-based clients has grown 50 per cent since May to make up about half of the company’s revenue, which Corlette expects to reach $5 million next year. The growth is more a consequence of word-of-mouth referrals that have seen Corlette’s China projects expand over the past four years from individual hotels to large mixed developments, but making her services easier and cheaper for Chinese clients to pay for no doubt plays a role as well.
Smaller Australian companies have been quicker than larger ones at adopting the yuan as a method of payment, HSBC says. Just 1 per cent of Australia’s trade with China has been settled in yuan since 2009, when it became an international trade currency – despite 10 per cent of China’s trade being settled in the currency last year alone – showing bigger businesses have been slow to adapt, the bank says.
By contrast, a survey by the bank of more than 500 Australian SMEs indicates that of those trading with China, 31 per cent plan to use both US dollars and yuan to settle trade transactions and an additional 13 per cent will exclusively use yuan over the next 12 months.
Being able to pay in yuan means Chinese clients don’t bear the currency risk of buying dollars. Corlette says her company minimises the risk of currency fluctuations by buying forward contracts.
“Businesses still need to recognise and exploit the opportunities presented by the growing international presence of the renminbi [yuan],” says HSBC Bank Australia’s business banking head Paul Edgar.
There are still grounds for caution, however. HSBC’s own research puts the daily global turnover of yuan at 60 billion ($9.1 billion), a fraction of the $US3.2 trillion traded each day globally and ranking behind the Swedish kronor, Hong Kong dollar, Canadian dollar, Swiss franc, Australian dollar (about $US250 billion-worth), British sterling, yen, euro and US dollar.
Peking University-based finance professor and former investment banker Michael Pettis thinks there’s a lot of hype about the internationalisation of the yuan. “The impact is not going to be nearly as great as people think, at least for the next several years,” Pettis says. “There will certainly be significant growth in the use of the renminbi, but it would take a huge amount of growth simply for it to become a minor currency.”
But for smaller companies it can be a good option. Melbourne-based Studio 505, an architecture business with 25 professionals, now bills clients in yuan for projects in China.
But in early 2010, in an attempt to hedge its foreign currency exposure, it opened both Singaporean dollar and US dollar accounts. The Aussie’s subsequent relentless rise lost the firm more money than director Dylan Brady anticipated. So the next year he closed the accounts and now payments are made through a foreign exchange company that has accounts in both countries and pays into the company’s Australian account.
“When money comes in from overseas, we convert it at whatever the day rate is,” Brady says.