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Unravel the complexities of RMB Internationalisation

The Rising Role of RMB-

A Corporate Perspective

24 May 2012

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1. RMB Internationalisation Overview

A Global Trade Currency

A GlobalInvestment Currency

A Global Reserve Currency1 2 3

JUNE 2009Pilot launch of cross-border RMB trade settlement scheme

JUNE 2010Expansion of cross-border RMB trade settlement scheme

AUGUST 2011Announcement on further expansion of the scheme to nationwide

Mar 2012Announcement to abolish the MDE requirement

JULY 2010Foundation of the offshore RMB (CNH) market in Hong Kong

AUGUST 2010Onshore RMB inter-bank bond market opened to selected offshore RMB Financial Institutions

JANUARY 2011Mainland Enterprises can make overseas investment in RMB in the form of ODI

AUGUST 2011*

Hong Kong enterprises can invest in Mainland securities under the RQFII channel

Mainland companies can issue RMB bonds in Hong Kong

Mainland investors can buy Exchange-Traded Funds linked to Hong Kong stocks

OCTOBER 2011

Formalization of RMB Foreign Direct investment (FDI)

Sep 2011Nigeria announces plans to invest 10% of its foreign exchange reserves into RMB

MAR 2012Japan received approval to purchase RMB65bn Chinese government debt

By the 2020sRMB to be accepted across the world as an international currency, paving the way for full convertibility and reserve currency status?

* Exact implementation timeline to be announced

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2. RMB Trade and Deposit Volume Growth (Hong Kong)

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50

100

150

200

250

300

Jul-09

Aug-09Sep-09Oct-

09Nov-09Dec-0

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b-10Mar-1

0Apr-1

0May-1

0Jun-10

Jul-10

Aug-10Sep-10Oct-

10Nov-10Dec-1

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b-11Mar-1

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0

100

200

300

400

500

600

RMB Trade Settlement Vol (Monthly)

RMB Market Deposits

RMB

Billi

on

RMB

Billi

on

RMB Trade Settlement figure is for trade settled in Hong Kong Source: PBoC, HKMA, CEIC, HSBC

As of February 2012> RMB 2,600bn of China’s trade settled via Hong Kong

2011 (RMB1,915bn) has more than 5x of 2010 (RMB369bn)

> RMB 560bn Deposit in Hong Kong

Nearly 2x compared to the beginning of 2011 (RMB 315bn)

About 10% of total Hong Kong deposits

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3. RMB Market Potential

Notes: (1) HSBC Trade Confidence Index -

Oct 2011(2) HSBC RMB Cross-Border Trade Settlement Survey 2011(3) HSBC in-house estimates

2010-2011| 2013-2015| 2015-2020|

After USD and Euro, RMB is expected to replace GBP as the 3rd popular currency for trade settlement globally

(1)

Nearly 8 in 10 businesses in mainland China

which have not yet started to use RMB to settle cross-border trade are planning to use or adopt it conditionally in their future transactions (2)

More than

USD 2 trillion or

one half of China’s total trade flows with emerging markets expected to be settled in RMB by 2013 to 2015 (3)

Further financial reform

to put internal financial house in order (3)

Paving the way for full RMB convertibility (3)

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Payables and Receivables

Asset and Liabilities

Foreign Exchange Cost

Currency fluctuation premium

Administrative Process

Customer Base

Currency portfolio

Risk Exposure

SAVE

HEDGE

DIVERSIFY

GAIN

Potential RMB Appreciation

Onshore / Offshore Investment Returns

Importer/Exporter Relationship

4. Potential Benefits for Your Company

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DIVERSIFY GAINHEDGE

4.1 Benefits for Overseas Exporters

Natural hedge of RMB position for future payments

Flexibility to exchange the received RMB back to other currencies

Access to a wider importer base who might otherwise have limited access to foreign currency and adverse to FX risks

Currency portfolio and risk exposure profile

Secure / maintain buyer relationship

Potential RMB Appreciation

Accumulating RMB offshore for future investment

Exporter(Overseas)

Importer(China)

Goods

RMB Payments

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HEDGE

Natural Hedge of RMB position for receivables in the same currency

SAVE

Save unnecessary FX cost as payables and receivables are in one single currency

4.2 Benefits for China Importers

Exporter(Overseas)

Importer(China)

Goods

RMB Payments

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SAVE

By eliminating the FX concern of the exporters in China, importers may save the “currency fluctuation premium”

in the RMB quotation of up to 5-7%

DIVERSIFY

Access to a wider exporter base who might otherwise have limited access to foreign currency and adverse to FX risks

Currency portfolio and risk exposure profile

GAIN

Secure / maintain supplier relationship

4.3 Benefits for Overseas Importers

Importer(Overseas)

Exporter(China)

Goods

RMB Payments

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SAVE GAINHEDGE

4.4 Benefits for China Exporters

Natural Hedge of RMB position for payments in the same currency

Save unnecessary FX cost as payables and receivables are in one single currency

Save administrative process in applying for export tax rebate

Accumulating RMB onshore for: Onshore RMB investment Potential RMB Appreciation

Importer(Overseas)

Exporter(China)

Goods

RMB Payments

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1. Can I pay or receive in

RMB? When?

2. Do I need an RMB account?

Where?

3. What to do with idle RMB?

How?

ONSHORE

5. Applying RMB in Your Business

OFFSHORE

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5.1 Can I pay or receive in RMB? When?

1.

Trade payments for GOODSMainland Enterprises with Import and Export qualifications may export goods in RMB*

2. Trade payments for SERVICES

Allowed (contract and invoice in RMB required)

3.

Intercompany loansAllowed (subject to SAFE filing)

4. Additional Capital Infusion

Allowed (subject to MOFCOM approval)

5.

Foreign Direct InvestmentAllowed (subject to MOFCOM approval)

6.

Expatriates SalariesNot Allowed

1.

Trade payments for GOODS

Allowed (contract/invoice/customer declaration required)

2. Trade payments for SERVICES*Allowed (contract and invoice in RMB required)

3.

Intercompany loansCase-by-case approval by PBOC/SAFE

4.

Capital investment overseas (ODI)Allowed (subject to MOFCOM approval)

5.

Dividend Payments / Repatriation of Profit

Allowed

6.

Expatriates SalariesAllowed

Overseas-to-overseas RMB transactions are not regulated by PBOC, but may be subject to the local regulations elsewhere

PAYMENTS INTO THE MAINLAND PAYMENTS FROM THE MAINLAND

Mainland ChinaRMB Area

* Mainland Designated Enterprise (MDE) requirements will remain in force until publication of blacklist names -

Contact local HSBC branches for more information

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5.2 Do I need an RMB account? Where?

Overseas Company

China Company

OPTION 1. NON-

RESIDENT RMB A/C (MAINLAND CHINA)

OPTION 2. OFFSHORE RMB A/C

(HONG KONG)

OPTION 3. OFFSHORE RMB A/C

(OTHER COUNTRIES)

OPTION 4. NO RMB A/C

MAINLAND CHINA HONG KONG OTHER COUNTRIES

OPTION 1:

PBOC approval is required

Regulated interest

Currency exchange not allowed

Cash withdrawal/deposit not allowed

Same-name funds transfer between NRA and overseas a/c is allowed

OPTION 3:

Subject to local regulations and banking infrastructure

No restriction from PBOC

OPTION 2:

Current a/c and saving a/c allowed for both resident and non-resident companies

Interest not regulated

No restrictions for currency exchange

Cash withdrawal / deposit allowed

No restrictions on the transfer of RMB funds between different customers in Hong Kong

OPTION 4:

Subject to local regulations and banking infrastructure

Payment proceeds will be converted to/from the denominated account currency

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5.3 What to do with idle RMB? How?

Offshore RMB Products (Hong Kong)

Following the establishment of the interbank market in 2010, Hong Kong is developing as an offshore RMB

Investment Centre with a wide range of RMB investment products available:

Time deposit, certificate of deposit

Primary and secondary RMB bonds trading

FX linked structured deposit

Interest rate linked structured deposit

Equity linked structured deposit

Gold linked structured deposit

RMB investment funds

Offshore Liquidity Management Solutions

Outside China, RMB is treated as another foreign currency and Global Liquidity Solutions (GLS) suite is

applicable depends on local practices and regulations in respective jurisdictions.

Cash Concentration

Single Currency Notional Pool

Multi-Currency Notional Pool (Interest Optimisation

Facility)

X-border/ X-currency Yield Enhancing (Interest Enhancement Facility)

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Trade and Supply Chain

Trade account (no new a/c needed)

Import and export services, including:

Open account trading

Documentary credits

Documentary collections

Trade finance

DC advising

Internet Trade Services (ITS) via BIB and HSBCnet

Saving / Current accounts

Remittances (TT/RTGS/AutoPay)

Payments / Collections Advising

Cheques

/ Cashier’s Order

Bill Payment

Cheque

Collection Solutions

Time Deposits

Currency Exchanges

Liquidity Management

Online RMB transactions and reporting via BIB, HSBCnet &

HSBC Connect

Payments & Cash Management

As RMB internationalisation

is rapidly evolving, services offered may vary by country or region. Please note that the products and services mentioned above may not be available in all countries or regions and are only available in

jurisdictions where the respective HSBC entities are authorised

to operate.

Unravel the complexities of RMB and make it “just

another currency option”

for your business with our on the

ground expertise and comprehensive suite of onshore and offshore

RMB solutions.

6. HSBC’s RMB Solutions and Global Capabilities

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7. HSBC’s RMB Solutions and Global Capabilities (Cont’d)

RMB Capabilities in Over 50 global markets

New Zealand

JapanSouth Korea

Hong Kong

Vietnam

USA

Brunei

IndonesiaSingaporeMalaysia

Thailand

MauritiusAustralia

UK

Russia

Germany

South Africa

Argentina

Mexico Saudi ArabiaUAE

MacauPhilippines

Brazil

FranceTurkeyItaly

Kazakhstan

Israel

Canada

Poland

Armenia

Czech

Uruguay

BangladeshIndia

Spain

Chile

Paraguay

GeorgiaSlovakia

Greece

PanamaEl Salvador

Bermuda

Switzerland

Ireland

Sri Lanka

Bahamas

Costa Rica

Malta

Luxembourg

Taiwan

Oman

Qatar

KuwaitLebanon

Jersey

Monaco

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8. HSBC’s RMB Milestones

OFFSHORE

First foreign bank to settle cross-border RMB Trade in Hong Kong (& Macau)

First

to issue RMB Bonds and No 1 in offshore RMB bonds: 79 issues (RMB32.9bn), 21.8% market share

First-in-the-market:

HSBC RMB Trade Finance Standard Rate

>280,000 accounts

with RMB capabilities and Pioneer of all new product launch in HK market: Structured deposits, CDs, insurance, HSBC RMB Trade Finance Standard Rate, RMB current account, cheque

services, Cashier’s Order <<2011>>, Demand Draft <<2011>>, autoPay, Business Card <<2011>>, Business Internet Banking and HSBCnet support RMB transactions, etc. Launched first RMB IPO

in Hong Kong as a Joint-Lead Arrangers in Hui

Xian REIT IPO.

HSBC becomes bookrunner

and global coordinator

for Ministry of Finance

RMB offshore bond <Sept 2011>

Best Offshore RMB Bond House

and Dim Sum Bond House by FinanceAsia

and IFR respectively.

Pioneered HSBC Offshore Renminbi

(RMB) Bond Index <2011> HSBC becomes first and only foreign custodian bank

for RMB Qualified Foreign Institutional Investors (Dec 2011)

Lending interbank activity: HSBC publishes daily Interbank Offer Rate

for CNH money market <Jan 2012>

MAINLAND CHINA

One of the first

foreign banks granted as a RMB agency bank.

First International bank to complete transactions in all provinces/cities

in which HSBC has a presence

HSBC becomes first and only foreign custodian bank

for RMB Qualified Foreign Institutional Investors (Dec 2011)

GLOBAL

First

foreign bank to settle cross-border RMB Trade across all 6 continents.

RMB capability in over 50 countries, across all continents.

HSBC Taiwan -

First foreign bank

with license to offer RMB products and services and first foreign bank to complete a RMB cross-border transaction in Taiwan.

First to launch RMB Personal banking in Brunei, New Zealand, Thailand and Mauritius, also available in eight other Asia Pacific Sites (Hong Kong, Macau, Singapore, Japan, Malaysia, Korea, Australia & Philippines).

Over 30 roadshows

and seminars conducted to raise awareness of RMB internationalisation, covering regions including Asia Pacific, Western and Eastern Europe and the US.

HSBC takes key role developing London

as a RMB financial centre.

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Disclaimer

There may be exchange rate risks if you choose to convert RMB into other currencies. RMB is currently not freely convertible and is subject to certain conversion restrictions.

This document is issued by The Hongkong

and Shanghai Banking Corporation Limited (HSBC). The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is

accepted whatsoever for any direct, indirect or consequential loss arising from the use of or reliance on this document or any information contained herein by

the recipient or any third party.

Any examples given are for the purposes of illustration only. The opinions in this document constitute our present judgment, which is subject to change without notice. This document does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this document. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. This document, which is

confidential and not for public circulation, must not be copied, transferred or the content disclosed, in whole or in part, to any third party. The document should be read in its entirety.

Copyright. The Hongkong

and Shanghai Banking Corporation Limited 2010. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Hongkong

and Shanghai Banking Corporation Limited.

All the information set out in this presentation is provided on the best of the Bank's current knowledge and understanding of the relevant law, rules, regulations, directions and guidelines governing or otherwise applicable to RMB trade services but the Bank makes no guarantee, representation or warranty and accepts no liability as to its accuracy or completeness. Please refer to any updates that shall be published or issued by our Bank from time to time including notices that we place at our HSBC branches.