Sino-German center in Frankfurt develops renminbi products and boosts internationalization

The Sino-German Center of Finance and Economics in Frankfurt will help make the offshore yuan trading center in the city more attractive, says Ruediger von Rosen, co-CEO of the Sino-German center.

"We already have many renminbi (financial product) initiatives. We hope to intensify them with cooperation with other financial institutions in Frankfurt," says von Rosen, adding that they will conduct research aimed at designing more such products to join the existing Goethe and Panda bonds.

The skyline of the banking district of Frankfurt. The Sino-German Center of Finance and Economics will help make the offshore yuan trading center in the city more attractive, says Ruediger von Rosen, co-CEO of the center. Provided to China Daily

"We need to make the yuan trading center in Frankfurt more attractive, because we cannot force enterprises, which got used to turning to Hong Kong or Singapore for clearing in their business with China, to cooperate with us."

The center was established in the framework of the First China-Germany High Level Financial Dialogue, which was conducted by Vice-Premier Ma Kai, German Federal Finance Minister Wolfgang Schaeuble and President of the Deutsche Bundesbank German central bank Jens Weidmann in March.

The decision to move forward with the initiative of the financial dialogue was made by President Xi Jinping and German Chancellor Angela Merkel during Xi's visit to Germany last year to strengthen financial collaboration between the countries.

The center is supported by the People's Bank of China and the Deutsche Bundesbank, the central banks of the two countries. It brings together the Research Institute of the People's Bank of China, the International Monetary Institute of Renmin University of China, and the House of Finance of Goethe University Frankfurt to contribute to sustainable development of the financial and economic relations between China and Germany.

The center will offer "academic research solutions to China-Germany finance-related long-term issues", von Rosen says. It will play a neutral, supportive role among financial authorities, enterprises and academic circles from the two countries, he says.

An efficient yuan trading center in Frankfurt will benefit both German and Chinese enterprises and the economies of the two countries, he says.

Most German enterprises that do business with China have had to use centers such as Hong Kong or Shanghai for yuan trading, and the yuan has to be converted into the US dollar.

However, with the yuan center in Frankfurt, those companies and others from Europe can complete their yuan trades in Frankfurt without using the dollar.

"That can cut costs and reduce risk for those enterprises," says von Rosen.

According to conservative statistics from the Frankfurt Main Finance, a Frankfurt-based marketing organization with about 40 financial institutions as members, German small- and medium-sized enterprises will save at least 500 million euros a year with yuan trading service in Frankfurt.

The organization believes there is great potential for renminbi trading. Until now, just under 10 percent of Sino-German trades have been conducted in the Chinese currency, it says.

Financial experts agree that the opportunities for yuan trading expansion that exist for all parties concerned are apparent from a glance at the figures from the SWIFT transaction service: in September 2013, the latest figures available, 14.1 percent of the payments between China and Germany were denominated in renminbi, compared with 8.2 percent in May 2013 and 2.4 percent in May 2012. Frankfurt Main Finance estimates this could rise to about 30 percent.

Germany is China's biggest trading and technology partner in the European Union. China is Germany's largest trading partner in Asia. China also is the fifth largest export market for Germany, and Germany is the second-largest supplier of goods and services to China.

China-German trade last year amounted to 160 billion euros ($179 billion), about 600 times that of 1972, when China and the former West Germany established diplomatic relations. Trade volume - equal to China's combined trade with the United Kingdom, France and Italy - accounts for nearly a third of total trade between China and Europe.

The increasing bilateral trade also has required intensive financial cooperation, including establishment and improvement of efficient financial infrastructure, says von Rosen, adding that China and Germany can learn from each other.

After World War II, Germany managed to make the deutsche mark a stable hard currency around the world. That will be instructive for China in the internationalization of the renminbi. And China has a lot of experience in Internet finance, which Germany can learn from, von Rosen says.

Asked about challenges, von Rosen says that "to understand China" is the thing that German financial enterprises should be concerned with.

He says his center will hold academic exchanges and organize personnel training programs for Chinese enterprises that want to invest in the German capital market, and later for German companies that want to invest in renminbi financial products.

There are more than 280 financial institutions in Germany, and 223 have settled in the Frankfurt/Rhine-Main metropolitan region. Of those, 197 are located in Frankfurt, including the European Central Bank, the Deutsche Bundesbank, the German Federal Financial Supervisory Authority and other banking and insurance supervisory bodies for the euro area.

About 500 Chinese companies have set up their headquarters in Frankfurt, which is more than half of all Chinese companies with a presence in Germany.

Von Rosen is optimistic about Chinese economic growth this year. Although the demographic dividend in China has nearly played out, China will not stop improving people's living standards, which will provide an impetus to the Chinese economy, von Rosen says.

He also says Chinese exports should continue to grow, which will push internationalization of the renminibi.

The challenge is to handle the differences in exchange rate pricing systems between China and other countries, he says.

Another factor that may further internationalization of the yuan is that the International Monetary Fund is conducting a review of the Special Drawing Rights basket of reserve currencies this year. Chinese and German officials have expressed agreement that the SDR basket composition should continue to reflect the changing role of currencies in the global trading and financial system.

In the financial dialogue in March, the German side said it supports China's goal to add the renminbi to the SDR basket based on existing criteria.

zhouwa@chinadaily.com.cn

(China Daily European Weekly 10/01/2015 page22)