INDUSTRIAL AND COMMERCIAL BANK OF CHINA ICBC: Your Global Portal to RMB Market. July 2012

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1 ICBC: Your Global Portal to RMB Market July 2012

2 Content General Introduction Investment in RMB Services Solution 1

3 General Introduction to Renminbi (RMB) RMB Renminbi (commonly abbreviated as RMB) is the official currency and legal tender in Mainland 2003 China. The RMB is also referred to as Chinese Yuan. The currency symbol is " ". The ISO code used by SWIFT is CNY. The People's Bank of China (PBOC), China's central bank, is the authority to set and manage the monetary policy with regard to the RMB. For practical purposes RMB can be divided into two categories--cny and CNH. CNY (onshore RMB) CNY (Chinese Yuan, onshore RMB) refers to RMB circulated and used (in cash and electronically) in Mainland China. CNH ( Offshore RMB) CNH refers to RMB circulated and used (in cash and electronically) outside Mainland China. The letter H in CNH stands for Hong Kong, since this was one of the first offshore centers where the CNY was allowed to circulate electronically. CNY remains the sole ISO code to identify the Renminbi globally. 2

4 General Introduction: Policy Overview Signing local currency settlement agreements with 8 bordering territories RMB clearing service for personal customers in HK and Macau approved by PBOC Sept 2010 Aug 2011 June 2012 Signing currency swap agreements with 12 countries/territories with a total value of RMB841.2 billion Pilot program: Shanghai and other four cities of Guangdong; Rules governing Cross-border RMB settlement issued Overseas non-financial institutions allowed to open NRA RMB account in Mainland banks for cross-border RMB business Pilot area for cross-border RMB settlement expanded to cover whole Mainland China. All importers and exporters in China will be able to settle cross-border trade in RMB, despite the black list of PBOC. Expanding use of RMB in Trade and investment Promoting convertibility of RMB under capital account Relaxing control on cross-border use of RMB by individuals 3

5 Channel of Overseas RMB funding and using Channel of Overseas RMB Funding Export to Mainland China or a third country RMB financing from local market or Mainland China RODI from Mainland China RMB bond issuance in Mainland China and HK RMB purchase Currency Swap Channel of Overseas RMB Using Import from Mainland China or a third country RFDI Investment in China inter-bank RMB bond market Investment in China stock and bond market via RQFII Deposits Exchange to other currency - 4-4

6 Current Cross-border RMB Settlement Regional Distribution of Cross-border RMB Settlement Volume Singapore, 13% Source: PBOC Sw itzerland, 5% Macau, 2% USA, 2% Indonesia, 1% Other, 3% Hong Kong, 74% As of 31 July, 2010 About 74% Cross-border RMB settlement conducted with HK As of 31 Dec., 2011 About 63.7% Cross-border RMB settlement conducted with HK By the end of 2011, 181 countries and regions have participated into cross-border RMB business. By the end of 2011, the settlement volume hit 2.58 trillion yuan (409 billion US dollars), representing 10% of China's total trade, while it was 3.6 billions yuan at the end of

7 Market update: onshore and offshore RMB Cross-border Trade Settlement CNH Bonds market in Hong Kong Sources: WTO According to PBOC,RMB settlements have reached 10% of China's trade at the end of

8 Potential for the RMB development 1 World payments currencies versus trade Sources: WTO 7

9 Potential for the RMB development 2 % World merchandise exports by region and selected economy Sources: WTO year United States Germany France China Japan % currency distribution of the global foreign exchange market turnover Sources: BIS 0.43% year US dollar Euro Chinese renminbi Japanese yen other currencies 8

10 Global FX Market Turnover by currency pair Sources: BIS Turnover by currency pair in April 2010 had no major changes in ranking from three years earlier, although absolute turnover in the major currency pairs tended to increase. USD/EUR remained by far the dominant pair (with a 28% share), followed at some distance by USD/JPY with a slight increase to 14% of turnover. USD/CNY represented only 1% of global foreign exchange market turnover.

11 Currency Swap between China and other countries Partner country/region Scale Signing date Australia 2, Mongolia Turkey Malaysia 1, UAE Pakistan Thailand Hong Kong 4, Korea 3, Kazakhstan Uzbekistan New Zealand Singapore 1, Iceland Argentina Indonesia 1, Belarus Australia is the first developed entity to sign a currency swap agreement with China. The main purposes of the swap agreement are to support trade and investment between Australia and China. Total Size of RMB Currency Swaps RMB 100 Millions

12 Competition on offshore RMB center Hong Kong Hong Kong is unrivaled in its role as the biggest RMB offshore center Hong Kong has first-mover advantage in offshore RMB business, and the offshore market has a very good foundation and a comprehensive series of products. Singapore aims to be 2nd RMB offshore center Singapore As the only international financial center in the ASEAN, the RMB services in Singapore cover the entire ASEAN population of over 500 million, with high credibility. Singapore possesses mature foreign exchange experiences and talent resources. London London has been in efforts to build the RMB Western center outside Asia In January 2012, the joint announcement by the U.K. government and Hong Kong Monetary Authority that they will work together to develop offshore RMB trading. In April 2012, HSBC Bank plc launched in London the first international RMBdenominated bond to be issued outside China. In April 2012, The London Metal Exchange is considering allowing its members to clear contracts in China's yuan currency as part of plans to set up its own clearing house. Recently the Government of the City of London released a report, customers in London and the inter-bank RMB deposits reached 109 billion yuan, of which the customer deposits of $ 350 billion. 11

13 Recent China-Japan financial cooperation Tokyo aims to promote itself as another offshore RMB center. A framework about financial cooperation has been established at government level. A joint working team striving for China-Japan financial market development will be created. China-Japan financial cooperation has gained remarkable achievements

14 General Introduction Investment in RMB Service Solution 13

15 Advantages to invest in RMB 1 Why invest in RMB? Diversify the portfolio risk In the context of the current international financial market turbulence, holding RMB denominated assets can be an alternative choice to diversify the portfolio risks. Better way to access to China RMB is welcomed by Chinese companies, and consequently it may make it easier for French enterprises to reach their deal with Chinese counterparts. Investment in RMB will facilitate French enterprises' market expansion in China and help to set up its local market image. Realize hedging and appreciation RMB exchange rate is relatively stable. In recent years, RMB has seen continuous appreciation. In the long run, there is still room for appreciation. RMB will deduct the trading cost and promote trading efficiency, and provide with French enterprises hedging capacity outside China. New investment channel for higher return RMB can be invested in the RMB bonds in China mainland Bond/Equity Market and the offshore RMB market to get higher returns. 14

16 Advantages to invest in RMB 2 RMB exchange rate is relatively stable and has seen continuous appreciation. Considering China s growth perspectives, the risk for RMB denominated assets is relatively low. Exchange Rate Indices, Jan 2010=100 Sources: IMF Sources: WTO 15

17 Introduction to on-shore Bond Market Foreign institutions can buy onshore Chinese bond assets in two ways: - as a direct member of interbank bond market - under the QFII (qualified foreign institutional investors) program - relevant products provided by ICBC China s Government Bonds Yields Size and Composition of the LCY Bond Market (in RMB) Sources: Asia bonds online 16

18 Introduction to HK Offshore RMB Bond Market Tenor Size Mainly short-to-medium term, ranging from 2 to 5 years RMB Bonds in HK Coupon Deals size is generally between RMB 1 billion and RMB 3 billion, depending on the financing needs of the issuer and the distribution preference. The issuances by the financial institutions usually have larger scale Investors Including private banks, HK subsidiaries of Chinese banks, insurance companies and independent RMB funds Fixed-rate in most of the cases Liquidity RMB bonds can now be traded in HKex. RMB bond can be either traded publicly or over-the-counter 17

19 Offshore Trading Products Currency and instrument distribution of global foreign exchange market turnover Daily averages in April, in billions of US dollars and percentages 120 billions of USD Chinese renminbi Euro US dollar Spot Outright forwards FX Swaps Currency swaps Options and others type Spot Outright forwards FX Swaps Currency swaps Options and others US dollar Euro Chinese renminbi Currency 18 Sources: BIS

20 General Introduction Investment in RMB Services Solution 19

21 Service Solution: Global Service Network 33 countries and regions, 239 overseas institutions ( as of Dec. 31, 2011) 1553 foreign correspondent banks in 136countries and regions (as of Dec. 31, 2011) 20

22 Service Solution: Proven Off-shore RMB Services Many 1st in HK CNH Business 1st bank conducted USD/CNH swap deal 1st bank invested in the Chinese mainland inter-bank bond market One of the 1st banks for CNH HIBOR benchmark offering One of the 1st banks for CNH SPOT benchmark offering 1st bank conducted red-chip Dim Sum Bond underwriting 1st bank issuing 10-Y CNH subordinated bond 21

23 Service Solution: Comprehensive Product Series Full Products in RMB business Cross-border settlement RMB fund settlement for trade and non-trade purposes. Trade Finance Derivatives Trading RMB L/C Financing RMB Refinancing NDF; DF; CCS; Option FX/RMB Exchange Exchange services for both trade and non-trade, on-shore and off-shore FX/RMB conversion Deposit & Loan RMB Deposit and Loan with difference terms and maturities 22 Capital Market Bond issuance, underwriting or investment; RMB IPO; Fund in Trust

24 Disclaimer This report has been prepared solely for clients of ICBC and clients of certain affiliated companies of ICBC on the basis that no part of it will be reproduced, transmitted or made available to any other person. The information herein has been obtained from sources believed to be reliable, but its accuracy and completeness cannot be guaranteed. No liability or responsibility is accepted for any errors or for any negligence, default or lack of care or for any loss or damage whatsoever that may arise from actions based on material contained in this report. This document is not to be relied on as such or used in substitution for the exercise of independent judgment. 23

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