The significance of the renminbi continues to grow among Commerzbank’s corporate clients. The majority of companies with annual sales of €250m or more see the Chinese currency as highly relevant: 57% (2019: 46%) now use the renminbi for invoicing in their China business, and a further 20% of this group plan to make the switch in the next 12 months.
In the category for companies with annual sales of €50m or more, 42% of firms currently invoice in renminbi, and 26% plan to do so within a year. Hedging foreign exchange risk continues to be the main driver for invoicing (64%). For the companies surveyed, “advantages in opening up markets in China” are almost on a par with “advantages in negotiating pricing” (around 50% in each case).
The Covid-19 pandemic has had a noticeable negative impact on business in China for the majority of companies – with around three-quarters reporting a decline in sales of up to 25%.
However, over the course of the year, most of the declines have recovered to pre-crisis levels with two-thirds of the companies surveyed anticipating a positive future trend for business in China.
Around 20% of companies say they will remain below pre-crisis levels despite the recovery. Three quarters of all Commerzbank clients now conduct their China business via locations in Europe, while the most frequented branch in Asia is Shanghai. “For us, this is a clear indication that the renminbi is steadily developing into a “normal” foreign currency for corporate clients and it’s increasingly being settled at their European headquarters”, explains Michael Rugilo, Asia expert at Commerzbank.
38% of the companies surveyed are not currently planning to switch to renminbi (prior year 63%). According to the survey, the main barriers to the changeover are “established practices” (59%) and “the trading partner’s preference for euros or US dollars” (54%). Two other obstacles have become more relevant: persistently rigid capital outflow restrictions and “lack of confidence in the sustainability of the currency”, both criticised by 18% (2019: 11%) of respondents. 13% of the corporates also cite “political uncertainties”.
In day-to-day business, trade services (69%) and foreign exchange hedging and risk management instruments (59%) are the main instruments used in connection with renminbi products. Compared to 2019, the use of cash services and capital transfers has decreased. Of cash services, the majority of companies use renminbi payment transactions and accounts. “The fact that demand for renminbi financing declined during the pandemic demonstrates that many clients have an adequate capital base – even in pandemic times”, explains Mr Rugilo.
For the majority of respondents (63%), the US-China trade conflict has no impact on day-to-day business with China, even after the change of government in the US. This assessment is unchanged from 2019.