Ghandhara Nissan Limited (GNL) imported three million yuan of trucks from China by settling the trade transaction in renminbi in its maiden deal with a Chinese bank based in Pakistan.
The company’s official said that the automaker carried out Rs53 million (approximately three million Chinese yuan) letter of credit (LC) transaction with the Industrial and Commercial Bank of China Limited Pakistan (ICBC), which opened the LC for truck imports from China.
Ghandhara Nissan’s official said in an email:
“We had a CNY (Chinese Yuan) LC established through ICBC during March 2018 amounting to CNY3 million (approximating to Rs53 million). This is not the first trade transaction in CNY as far as our business is concerned; however, it is the first ever CNY LC transaction executed between ICBC and GNL.”
Ghandhara Nissan has had trade deals with Chinese original equipment manufacturers (OEMs) in yuan in the last few years with LCs established through multiple local banks. These OEMs include Dongfeng Commercial Vehicle Co. Limited, China and JAC Motors, China.
GNL’s official said since trade in Chinese currency is in a developing phase and the volume is not substantial as compared to trade in dollars, cost of retiring import documents is slightly high if letter of credit is established through any local bank.
“This can be reduced by having LCs established through Chinese banks like ICBC,” the official said. “Furthermore, as of now, most of the banks are not offering forward covers to hedge forex exposure in case of CNY LCs, which usually are available for LCs in USD (dollar).”
Advisor to the ICBC told The News that trade transaction in Chinese currency is very good for Pakistan and “as a first step in encouraging the use of local currency between the two countries’ increasing trade going forward”.
Chinese banks are very eager to promote international use of yuan in different regions of the world, especially across the rout of its Belt and Road initiative.
China is Pakistan’s largest trading partner with bilateral trade volume of $14 billion. The neighboring country pledged more than $55 billion in investment for infrastructure development under China-Pakistan Economic Corridor project.
The State Bank of Pakistan is encouraging Chinese lenders to establish a local yuan settlement and clearing mechanism in Pakistan. Like ICBC, Bank of China has acquired license from the central bank for clearing and settlement of trade in Chinese currency in Pakistan. ICBC got license in 2015.
A banker said allowing yuan settlement will enable businesses to deal with Chinese trade without basing transactions in US Dollar or Euro.
“This will make yuan an international currency of choice,” the banker added. “It should save transaction cost and smooth transfer of funds pertaining to Chinese Pakistani trade.”