A trip to Yiwu can be a bewildering affair. When a British newspaper visited the world’s largest wholesale market a few months ago, it met a British businessman who complained it was too hard to find the right product.
“It is like finding a needle in a haystack,” Ian Hunt told The Daily Telegraph. With 62,000 outlets offering an estimated 1.7 million products, it’s not hard to see why. The newspaper calculated that if a visitor were to spend just three minutes visiting each booth for eight hours a day, it would take a year to go through the entire market.
Yiwu’s product range is also what keeps the buyers coming, of course, making the Zhejiang town into one of China’s most important trade centres, especially for small-scale entrepreneurs.
So it should be less of a surprise that Yiwu is also at the forefront of a new scheme to make it easier for single-proprietor businesses to use the renminbi to settle their overseas trade.
Starting out as a pilot programme late last year, the scheme allows banks in the city to offer renminbi trade settlement services to small businesses, reports 21CN Business Herald.
The concession is an important one because, legally, Chinese residents can only exchange the equivalent of $50,000 worth of foreign currency a year. But a self-employed businessperson in Yiwu faces no such restriction, as long as the exchange is part of a trade transaction allowed under the trial programme.
Approximately a quarter of Yiwu’s 750,000 population is registered as a self-employed trader, making them an ideal audience to test out the new scheme. In fact, the Yiwu branch of the People’s Bank of China expects this kind of personal cross-border renminbi business to grow to more than Rmb3 billion ($488 million) by the end of the year.
Allowing individuals and small businesses to use the renminbi to conduct cross-border transactions could open “a massive new conduit for Chinese currency to flow into global markets,” says Reuters. That is to say, it would amount to another significant move in the easing of capital controls.
It is also a logical next step on from the renminbi trade settlement scheme launched in 2009. This permitted designated firms to use the Chinese currency in their import and export activities. Last year, 8.4% of China’s foreign trade volume was settled in renminbi, reports National Business Daily.
The main attraction for exporters in invoicing their customers in renminbi is that they mitigate the currency risk associated with the transaction, which is especially useful at the moment as the Chinese currency hits new highs against the US dollar.
For anything other than large transactions, the Yiwu scheme is relatively straightforward. If the deal is worth less than Rmb500,000, the trader only has to show an identity card to the bank. A larger sum will require proof that the deal is authentic such as purchase contracts or customs declaration forms.
“The pilot programme aims to simplify procedures for self-employed businessmen, as the external trade situation is not good this year,” Liu Dongliang, a currency analyst at China Merchants Bank told the Global Times.
The scheme in Yiwu is still in its infancy. An account manager at Jinhua Bank, a local lender, told 21CN Business Herald that it had only just begun to promote the service, while a source from a branch at ICBC, a much larger bank, said that demand from small businesses for the new arrangements was still small.
The Yiwu pilot also comes at a time when Beijing is trying to counter the flow of hot money across Chinese borders. Inflows that exploit holes in the country’s porous capital controls have also been attracting the attention of China’s foreign exchange regulator SAFE (see WiC 194).
Hence the Yiwu experiment will be closely watched. If there is any suspicion that the scheme is being used to channel speculative funds into or out of China, the pilot plan could come to an early halt.
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