There is a growing awareness in the use of the renminbi for trade settlement in Bangladesh as Chinese companies are setting up manufacturing facilities in the country and with trade increasing between the two partners.

 

Bashar Tareq, director for global banking and markets at HSBC in Bangladesh, says that while there has not been a significant pick-up in the use of renminbi in Bangladesh since the Chinese authorities have eased the regulations on the currency, there have been a lot of education programmes and seminars going on across the country on the usage of the renminbi.

 

“At this point, the need is there to use renminbi for trade settlement,” Tareq adds. “We just need a change in mindset and for people to see the benefits.”

 

HSBC is the first bank in Bangladesh to open the first renminbi-denominated letter of credit for a client that has import needs from China. “The clients are starting to understand that if they trade directly in renminbi against the taka, it will be beneficial for them since they will not be monitoring the movement of the US dollar,” says Tareq. “In addition, the sellers in China prefer to get direct payments in renminbi.”

 

Tareq points out that Bangladesh Bank, the country’s central bank, has included renminbi as one of the basket of currencies for its foreign exchange reserves. While it has already started to transact in renminbi, he notes that it has not moved a large amount into the Chinese currency.

 

China is among several markets that Bangladesh is cultivating to diversify its export trade away from Europe, which in 2011 accounted for over 50 percent of all its export trade.

 

Tareq says that the garment exporters association in Bangladesh has tapped 11 markets, including China, as new export destinations and recorded a 42 percent rise in exports in the first seven months of the current fiscal year ended June 2012. The other markets include South Africa, Brazil, Australia and Japan.

 

Bangladesh trade has doubled during the past seven years and its position as the world’s third largest exporter of apparels and textiles makes it a market to look out for. Bangladesh’s total exports have increased by close to 40 percent from 2010 to 2011, while apparels and textiles exports have risen by 30 percent.

 

Meanwhile, a recent study by McKinsey revealed that over 30 percent of foreign investors in China would consider relocating their manufacturing sources from the mainland to Bangladesh, which Tareq attributes to the lower wages in Bangladesh. Even within the emerging markets landscape, the international apparel brands have been increasingly choosing Bangladesh over the other emerging market locations such as India and China.

 

Bangladesh, though, is facing a major hindrance is attracting more overseas investors in view of the current state of infrastructure in the country. “While Bangladesh has recorded a strong economic growth in the past six to seven years, it does not have enough resources to invest in infrastructure,” Tareq points out. “However, the government is pursuing to build several projects including multi-lane highways, elevated expressways and flyovers throughout the capital, as well as the first deep-sea port to boost the connectivity across the country.”