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Issue link: http://digital.canadawide.com/i/394777
16 BCBusiness november 2014 endorsed a settlement centre in either Toronto or Vancouver—will meet with Chinese president Xi Jinping in Beijing to discuss a host of issues, including the architecture that would allow for the easier movement of money across the Pacific. According to Grégoire- François Legault, a researcher at UBC's Liu Institute, the Chinese government and Chinese banks have been "comparatively more eager" than Canadian officials to establish the hub here. China is the largest trading economy in the world, and it's keen to use its currency in trade deals abroad. In 2009, the Chinese government began to strip away restrictions on the use of its currency as part of a suite of financial reforms that included interest-rate liberalization and the opening of China's capital markets. At that time, China settled just two per cent of its external trade transactions in its own currency. By 2014—as Beijing and its foreign counterparts licensed trading exchanges and currency swap lines in financial hubs such as London, Frankfurt and Singapore—that figure had grown to 17 per cent, or around $358 billion annually. In that same period, trade between Canada and China increased 60 per cent. A clearing-bank mechanism could shave currency conversion costs for Canadian companies who import from and export to China. While $120 million in savings— compared to the $70 billion in annual Canada-China trade—is small potatoes, the move could make Canadian bids and projects more attractive to Chinese investors, who are keen to avoid the risks and hedging required when a deal is processed in U.S. dollars. That extra step can add one to five per cent to the cost of a trade deal, according to figures from HSBC Bank Canada. Yet relatively few Canadian companies do it: in a survey of its customers in July, the Vancouver-based bank found that only five per cent of Canadian companies conducting business in China have settled deals in Renminbi compared to the global average of 22 per cent. So why Vancouver as the new home of a trading hub? This city is ranked 17th on the Global Financial Cities Index, has a comparatively small population base and a dearth of corporate headquarters. It isn't an obvious choice for the first Renminbi trade settlement in the Americas. But what it does have going for it is tax incentives for financial-sector businesses, pioneer issuance of the Chinese currency bonds and strong cultural and trade ties with Mainland China—bolstered by institutions such as UBC with powerful alumni in China's banking sector. That's why Christy Clark and the provincial government got behind the idea in June. "We have tremendous ambitions and we know that the Bank of China will be part of it," Clark told a group of investors and bankers at the China and Canada Economy and Finance Forum, held in Vancouver in June. Kenny Zhang, a senior researcher at the Asia Pacific Foundation of Canada, also credits B.C.'s November 2013 issuance of Renminbi- denominated bonds—also known as the "dim sum bond"—for piquing interest in Vancouver. The province was the first subnational jurisdiction to issue bonds in Chinese currency (government bonds are typically issued in Canadian dollars or U.S. dollars)—a move that showed the Chinese that B.C. was serious about doing business in Renminbi. While there's fierce competition in other jurisdictions to host the next Renminbi trading hub, including Switzerland and France, signs from Beijing still point to the west coast of North America. As Dr. Yujing Xing, secretary general of the policy committee of the People's Bank of China, and one of China's top bankers, said in a speech at June's forum: "It's Vancouver or San Francisco." • SoUrCe: b.C. Trade + Invest 4.5% 15,000,000,000 Increase of China-Canada bilateral trade in 2013 Value of Renminbi transactions in Canada in 2013 (in RMB) 44% of B.C. trade accounted for by shipments to Asia in 2013 46% of B.C. trade accounted for by shipments to U.S. in 2013 Discount that com- panies eliminating a transaction's foreign exchange component typically realize SoUrCe: vancouver economic Commission and Canada-China business Council B.C. accounts for 48.7 % of China's soft- wood lumber imports China accounts for 26.1 % of B.C.'s soft- wood lumber exports Natural resources account for 8 3 % of B.C. exports to China, or $ 4 .9 5 b i ll i o n Average annual growth of B.C. exports to China (2007-2012)