Bank of China mulls providing credit line to MDEX

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PUTRAJAYA (April 14): Bank of China (Malaysia) Bhd (BOC) is mulling the setting up of a credit line to Malaysia Derivatives Exchange (MDEX) to promote bilateral currency trading between Malaysia and China.

“This will be the first case in Asean and with RMB (renminbi) already accepted as a currency for margins by the exchange houses, we are working with the aim to introduce RMB to commodities futures and capital markets,” Bank of China Ltd's president Chen Siqing said after the launch of BOC as the official Renminbi Clearing Bank in Malaysia today.

MDEX had in 2010, begin to accept RMB as margin collateral for trading in the Malaysian derivatives market.

Meanwhile, Chen announced that Bank of China will be providing a line of credit of not less than US$20 billion in 2015 and US$100 billion in the coming three years for projects in countries covered by China’s ‘One Belt One Road’ policy, which includes Malaysia.

Chinese framework for organising multinational economic development is through two component plans — the land-based Silk Road Economic Belt and oceangoing Maritime Silk Road. The initiative was unveiled by President Xi Jinping in major announcements in September and October 2013.

On top of that, he also said Bank of China will keep a ‘close and active’ attention to the development of Qinzhou Industrial Park and Kuantan Industrial Park by providing all-rounded services such as trade settlement, financial intermediation, risk mitigation and other services to Malaysian and Chinese enterprises.

Bilateral trade between Malaysia and China amounted to US$102 billion in 2014, both of the countries’ government had set a goal of reaching US$160 billion by 2017.

“At present, only 1.3% of bilateral trade between Malaysia and China is conducted through renminbi, which is far lower than the average rate of 10% to 12% in other Asian nations, giving renminbi a huge potential and space of growth in Malaysia,” Chen said.

Together at the launch today was Prime Minister Datuk Seri Najib Abdul Razak, who said the appointment of BOC as the new renminbi clearing house will increase bilateral trade and investment between the two countries.

“This is all the more important with the rise of the renminbi — reflected in the fact that renminbi foreign exchange now stands at 3.5 billion yuan a day,” Najib said.

Malaysia is the first ASEAN nation to sign the renminbi swap agreement with China and set up a domestic renminbi clearing bank.

“We also support China’s efforts to promote an inclusive regional growth agenda through a series of initiatives, from the Asian Investment Infrastructure Bank (AIIB), of which Malaysia is a founder member, to the 21st Century Maritime Silk Road, both of which are expected to increase investment flows into the ASEAN region,” Najib added.

Meanwhile, according to the findings of a survey conducted by HSBC Commercial Banking that was released today, 35% of businesses in Malaysia expect an increase in international or cross-border business with China in the next 12 months; while 34% of them that aren’t using the renminbi today said they plan to use it in the future.

“Many companies outside China used to see renminbi adoption as a somewhat niche opportunity to gain first mover advantage. They’re now adjusting to it becoming a mainstream tool,” HSBC Commercial Banking’s chief executive Simon Cooper said in a statement today.

“If you’re doing business with China, the world’s biggest trading nation, you have to think about doing business in China’s currency,” he added.