China is the world’s second largest economy, and the world’s largest trader in goods. It’s a country with huge opportunities for businesses large and small. Although it has opened up trading its currency, the Chinese yuan, knowing the differences between the domestic renminbi and the offshore renminbi will be a financial benefit for businesses of all sizes.
One of the world’s top five most-used currencies, the renminbi (RMB) is the official name of China’s currency. The Chinese yuan (CNY) is another name for China’s currency, and is the principal unit of RMB. The two names, renminbi and yuan, are interchangeable.
Opening the door
In 2009, Chinese authorities lifted restrictions on RMB trade settlements between China and Hong Kong – the first time that RMB settlements were allowed outside mainland China. This was marked by the creation of the CNH, with the ‘H’ standing for Hong Kong.
Since then, these regulations have been gradually eased, leading to the development of RMB markets in Hong Kong and other offshore RMB markets like Australia, the US, Singapore and the UK as China gradually internationalized the renminbi. These exist alongside the RMB onshore market in mainland China, where buying and selling restrictions still apply. As a result, there are now two RMB markets: offshore and onshore.
Due to China's cross-border currency controls, the Chinese yuan is allowed to trade for a different price in an offshore market like Hong Kong. In order to distinguish between these two prices, the unofficial abbreviation CNH is used to refer to the offshore price of the Chinese yuan (CNY).
CNY vs CNH - The same, but different
There are two types of renminbi covering a different major trading market.
CNY is renminbi traded within mainland China. CNY, also termed onshore yuan, is controlled by the Government of China with the aim of empowering trade between Chinese companies and to maintain a favorable value of the yuan.
The yuan is used mainly for two purposes on the onshore market: interbank settlements, and when corporations sell and buy FX for business purposes. The yuan’s onshore exchange rate ticker is CNY. Foreign businesses trading within mainland China can accept CNY as payment, but when they want to use yuan offshore, they need to exchange CNY to CNH.
CNH is renminbi traded offshore from mainland China. CNH, also termed as offshore yuan, is controlled by the free market which determines its value. It is specifically designed to be an offshore version of renminbi so that it can be freely traded in offshore markets like Singapore and Hong Kong. Its ticker is CNH.
Navigating the difference between onshore and offshore RMB
China’s capital markets are not open, so the yuan has different roles in domestic and international markets. It’s important for businesses to understand these differences when conducting international trade with China so they can successfully navigate China’s FX policy.
CNH is traded freely in currency markets across the globe and its price is determined by market forces. Using Hong Kong as an example, the offshore RMB (CNH) market is where the exchange rate floats freely (though this could change if there were regulatory changes in mainland China). There are no buying or selling restrictions. The CNH can be traded by Hong Kong residents, non-Hong Kong residents and some mainland China residents. The regulatory authority is the Hong Kong Monetary Authority.
Mainland China is where onshore RMB (CNY) is traded. There are buying and selling restrictions in place set by the State, which also regulates the currency exchange system. The Chinese government limits this daily amount to individuals and companies to no more than $50,000 USD. To remit funds more than this amount, a company or individual must apply to the local State Administration of Foreign Exchange for written approval. A reference rate is published daily by the People's Bank of China. It does not reference the previous business day’s exchange rate. Trades completed in mainland China can then be done within 2% of this reference value.
Companies trading CNH to CNY need to be aware that banks in mainland China can take advantage of the difference in the offshore and onshore price of the renminbi.
Transferring CNY to mainland China is complicated and time consuming
Making payments to mainland China has been a long and complex process which requires the sender to provide details about themselves and the recipient.
Furthermore, the purpose of the payment is required for CNY payments to a beneficiary in mainland China. There are at least ten codes that relate to different payment purposes, ranging from cross-border individual remittance (RMT) to a cross-border goods trade (GOD).
In short, it is complicated.
Getting the best from CNH
Many companies based in mainland China have offices in Hong Kong because it makes it much easier for them to trade with the West, as there is no limit to the CNH they can send out. But what of non-Chinese companies? How do they navigate doing business with mainland China without incurring high FX rates and encountering delays?
A financial life raft
APAC’s Fintechs and companies trading from the US and the EMEA have a life raft in the form of Currencycloud. Thanks to Currencycloud’s multi-currency wallet, all CNH to CNY payments are on a 1:1 basis: there is no extra FX fee compared to banks which charge businesses extra costs in transaction fees and the 2% variance applied to mainland China trades.
Because Currencycloud accesses both CNY and CNH, it provides businesses and individuals a 1:1 exchange rate when paying both offshore CNH payments and also onshore CNY payments into mainland China. This can be into corporate bank accounts and also to product and service providers who receive payments via a personal bank account, a new feature.
How are CNY payments made
In 2015, China’s central banking system implemented its own international payment system known as CIPS (Cross-Border Inter-Bank Payments System). CIPS provides clearing and settlement services for cross-border renminbi (RMB/Yuan) transactions.
CIPS became mandatory for cross border CNY in January 2021. Currencycloud’s banking partner is a member of CIPS which means that CNH is converted to CNY at a 1:1 exchange rate within China, meaning that businesses never need to make a second FX conversion in China.
Read more about how the seamless process works here.
You know where your CNH payments are
Payments into mainland China now come with extra reassurance and transparency. Because Currencycloud provides SWIFT gpi trackers, businesses can rest assured that their payments are safe and secure. The SWIFT trackers provide real time information about what the current status of a payment is, end-to-end, updated by participating banks. For that extra element of transparency, Currencycloud can also perform SWIFT tracers and recalls.
Flexibility and freedom
Companies can convert 26 currencies to CNH - CNY from a multi-currency wallet and enjoy seamless access to the Chinese market from wherever they are. Companies can also keep or hold CNH in their collection account (multi-currency wallet) to help them to hedge and protect their business profit from adverse FX movement.
Asia-Pacific companies such as One Point Universal, EasyPay and Bano, use Currencycloud to facilitate payments into China, enjoying the financial benefits of not having to pay FX rates with each transaction. Find out what it means for your business in having a cross-border payment platform like Currencycloud. Speak to one of our experts today.