RMB Internalization, Rational, Establishing of Clearing Bank and Requirement of becoming a HUB

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RMB Internalization

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Index
2
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Index
• Executive Summary 03
• RMB Internationalization 04
• RMB Clearing Bank Development Process 17
• Requirements to be a RMB Hub 21
• Global RMB Hubs 24
• China-Africa Cooperation 35
• China-Russia Cooperation 44
• Appendix 51

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Executive Summary
The research is a joint collaboration between MCM Partners and the Chinese University of Hong Kong (CUHK)
In this presentation, we will first provide you the rationale behind the internationalization of RMB. It also
describe the role and process of establishing of RMB clearing bank, as well as the list of requirements to
becoming a a RMB hub.
Next, we will introduce the major RMB hubs in the world, which are Hong Kong, London and Frankfurt, by
providing you with numerous facts, numbers and statistics.
Last but not least, in-depth analyses in the trade and cooperation between China and Africa, as well as China
and Russia, will be included in this presentation.
At the end of the presentation, you would clearly understand the past, current and future development of
the RMB hubs.

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RMB Internationalization

Lower cost RMB
financing for foreign
entities
• RMB trade financing and CNH
bonds financing have lower costs
and can eliminate foreign
exchange risk for foreign entities.
Greater investment
choices for foreign entities
• FX forward, FX options, interest
rate swap, cross currency swap
and bespoke structured risk
management products tend to
have more liquidity.
More benefits from RMB
appreciation
• There is a strong expectation of
RMB appreciation which can be
benefited through trading.
Broader access to onshore
purchasers and suppliers
for foreign counterparties
• Foreign corporates can freely pay
and receive RMB for settlement
of cross-border trade of goods
and services with mainland
corporates.
Lower trade transaction
costs for foreign
counterparties
• Due to reduced FX risks bearing
by mainland corporates, cost
savings can be passed to their
trade counterparties.
Less restrictions on RMB
transferring
• Onshore-Offshore: RMB
intercompany loans
• Offshore-Onshore: CNH
shareholder loans, an injection of
equity capital and remittance
based on real trade to onshore
5
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Why Adopt RMB?

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• The exchange rate gap
with USD between
onshore and offshore
RMB is minimizing
since the start of CNH
market in Hong Kong
in 2010.
• The real EER is
exceeding nominal
EER since 2011
illustrates RMB strong
tendency to further
appreciate against
USD.
• The rocketing trading
volume of CNH
market indicates its
replacement of NDF
market in the
foreseeable future.
Market Content Regulators FX Scheme Investors Forward
Curve
CNY
Onshore
RMB PBOC, SAFE
CFETS, daily
fixing with PBOC
intervention
Onshore residents,
approved offshore
investors
Onshore interest rate
CNH
Offshore
deliverable
RMB
HKMA,PBOC OTC, market
settlement
Offshore
investors
Offshore interest rate
NDF
Offshore non-
deliverable
RMB
None
OTC, daily fixing
based on CNY
central parity rate
set by PBOC
Offshore
investors
Offshore interest rate,
expected and
influenced by CNH
market
Source: Bloomberg Source: Bank for International Settlements
One Currency, Two Curves, Three Markets
* Comparisons among CNY, CNH and NDF markets

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2002-2008 2009 2010 2011
• QFII scheme
established.
• Dim sum bonds
issued in Hong
Kong.
• RMB cross border
trade settlement pilot
scheme between
Mainland Designated
Enterprises (MDEs)
in 5 cities and
corporates in Hong
Kong, Macau and
ASEAN.
• China's Ministry of
Finance issues the
first government dim
sum bond in the
offshore market.
• RMB cross border trade
settlement expanded to
20 provinces and
corporates all around the
world.
• Trade settlement
expended list of eligible
MDEs to over 67000.
• RMB bonds of all types
were open to all financial
intermediaries.
• China's Ministry of
Finance sells 8 billion
yuan of bonds of
different maturities in
Hong Kong.
• QFII allowed to
invest in the stock
index futures.
trade settlement
covered entire
China.
• RQFII scheme
established.
• RMB ODI was
allowed.
A Global Trade Settlement
Currency
A Global Investment
Currency
A Global Reserve
Currency

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A Global Trade Settlement
Currency
A Global Investment
Currency
A Global Reserve
Currency
• A dim sum bond is
issued in London for
the first time.
trade settlement
expanded to all
Chinese corporates
with import/export
scope on their
business licenses.
• PBOC granted
RQFIIs access to
inter-bank bond
market.
• RMB business started in
Taiwan
• First issue of an offshore
yuan bond in Taiwan.
• First issue of an offshore
yuan bond in Singapore.
• PBOC granted QFIIs
access to inter-bank bond
market.
• RQFII launched in Taiwan,
Singapore and London.
• Simplified RMB cross
border trade settlement
process announced
• Shanghai Free Trade Zone
was set up.
• The first RMB bond
was issued in
Germany.
• The largest offshore
RMB bonds was
issued in Singapore.
• The first non-Chinese
sovereign yuan bond
issued in UK.
• Shanghai-Hong Kong
Stock Connect
Program was
officially launched.
2012 2013 2014

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A Global Trade Settlement Currency
Currently:
• RMB is the seventh mostly-used payment currency according to SWIFT.
• RMB is the ninth most actively traded currency according to BIS.
• RMB surpassed the EUR as the second most used currency in international trade finance
according to SWIFT.
• RMB trade settlement accounted for 3%, 9%, 12% of the total China trade respectively
in 2010, 2011 and 2012, presenting an increasing usage of RMB as a trade settlement
currency.
Source: CEIC Data
0
200
400
600
800
1000
1200
1400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
RMB Settlement for Cross-Border Trade (CNY billion)
2010 2011 2012 2013

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What’s next?
• In 2013, China exceeded the United States, becoming world’s 1st largest trading
economy, the 1st largest export trading economy and the 2nd largest import trading
economy. It is predicted that the trade volume gap between China and the United
States will further widen, employing linear regression.
• China’s consistent and continual growth of exports and imports of merchandise
and services since 2005 demonstrates its sustainable development potential in the
foreseeable future.
Source: World Bank
1000
2000
3000
4000
5000
6000
7000
8000
9000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Exports and Imports of Merchandise and Services
(annual basis, USD bn)
China
United States
Japan
United Kingdom
Germany
China-Regression
United States-Regression
Japan-Regression
United Kingdom-Regression
Germany-Regression

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What’s next?
• China’s merchandise export
with developing economies
exceed that with developed
economies in 2011.
• China’s excess merchandise
import with developing
economies over that with
developed countries increase
gradually on the whole.
• It is expected that RMB will
be increasingly used in cross-
border trade settlement
between China and
developing economies with
the increasing multilateral
trade volume.
Source: UNCTAD
Source: UNCTAD
0 200 400 600 800 1000 1200
2005
2006
2007
2008
2009
2010
2011
2012
2013
China Merchandise Export with Different Parties
Developed Economies Developing Economies
0 200 400 600 800 1000 1200
2005
2006
2007
2008
2009
2010
2011
2012
2013
China Merchandise Import with Different Parties
Developed Economies Developing Economies

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A Global Investment Currency
CSRC SAFE PBOC
QFII
• Approves QFII
status
• Regulates onshore
securities
investments by
QFII
• Approves and allocates
QFII investment quota
• Regulates QFII’s
onshore accounts
• Regulates fund
repatriation/remittance
RQFII
• Approves RQFII
status
• Regulates onshore
securities
investments by
RQFII
• Approves and allocates
RQFII investment quota
• Regulates
onshore RMB
accounts
• Regulates fund repatriation/remittance
• The total QFII quota and RQFII
quota are increasing sharply,
especially for RQFII, 20 times as
much quota in 2013 as in 2011.
• The start of Stock Connect
between mainland and Hong Kong
in November strengthens the
expectation of further globalization
of mainland capital market.
• Despite the rocketing quota of
indirect investment for foreign
investment entities, its proportion
over China’s equity market
capitalization is still of
insignificance, indicating strong
potential development of China’s
equity market.
• The foreign direct investment are
lifting restrictions and it is
expected that further lifting is
imminent.
Source: SAFE
* Regulators of QFII and RQFII

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What’s next?
Source: World Bank
Source: World Bank
• China’s net inflows of
foreign direct investment
exceed that of the United
States in 2009.
• China has always been the
most popular choice of
foreign direct investment
among developing
economies since 1990s.
• China’s net inflows of
portfolio equity has strongly
recovered since its sharp
decline in 2011 .
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010 2011 2012 2013
Foreign Direct Investment, net inflows
China United States Japan United Kingdom Germany
-100.000
-50.000
0.000
50.000
100.000
150.000
200.000
250.000
300.000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Portfolio Equity, net inflows
China United States Japan United Kingdom Germany

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What’s next?
• Both China’s inward FDI and
outward FDI global market
shares are increasing,
accounting for over 8% and
7% in 2013, respectively.
• China’s inward FDI of stock
has a stable increase since
2005, showing strong
momentum. But its global
market share is relatively
small, only about 2%.
• It is expected that there’s huge
potential growth of inward and
outward FDI considering the
continual deregulation and
increasing quota of QFII,
RQFII and QDII programs.
Source: UNCTAD
Source: UNCTAD
Source: UNCTAD

What’s next?
Source: Bank for International Settlements
• In 2013, CNY consisted of 1% of the global FX market turnover. It is predicted that in
2027, CNY will account for 8% of the global FX market turnover. It is expected that
CNY global FX market turnover will exceed GBP before 2025.
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2001 2004 2007 2010 2013 2016 2019 2022 2025 2028
Global Foreign Exchange Market Turnover
Net-net basis, average daily turnover in April (USD bn)
CNY
USD
JPY
GBP
EUR
CNY-Regression
USD-Regression
JPY-Regression
GBP-Regression
EUR-Regression

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A Global Reserve Currency
• In 2010, China’s GDP exceeded Japan, becoming world’s 2nd largest economy. It is
predicted that China’s GDP will exceed that of the United States around 2016 using
exponential regression.
• 1% increase in one country’s GDP global market share (based on real exchange rate)
reasonably leads to 0.55% increase of its currency reserve in central bank.
• It is reasonable to predict that RMB will become a global reserve currency in the next
five years.
Source: World Bank
0
10000
20000
30000
40000
50000
60000
70000
2005200620072008200920102011201220132014201520162017201820192020202120222023
Gross Domestic Product
China
United States
Japan
United Kingdom
Germany
China-Regression
United States-
Regression
Japan-Regression
United Kingdom-
Regression
Germany-Regression

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RMB Clearing Bank Development Process

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Established RMB Clearing Banks

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PBOC’s RMB Bilateral Swap Lines
AMERICAS
Country RMB Bn Country RMB Bn
Argentina 70 Brazil 190
Total RMB 260bn
AISA PARCIFIC
Hong Kong 400 Indonesia 100
South Korea 360 Thailand 70
Singapore 300 New
Zealand
25
Australia 200 Japan 18
Malaysia 180 Mongolia 10
Total RMB 1663bn
EMEA
ECB 350 Pakistan 10
UK 200 Turkey 10
Russia 150 Kazakhstan 7
UAE 35 Iceland 3.5
Belarus 20 Albania 2
Ukraine 15 Uzbekistan 0.7
Hungary 10
Total RMB 813.2bnSource：PBOC

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Requirements to be a RMB Hub

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HK London Frankfurt
RMB goods trade* 401 billion 70 billion 162 billion
Offshore RMB deposit 1053 billion 14.5 billion 2.5 billion
Clearing banks BoC, Hong Kong
branch
CCB, London
branch
BoC, Frankfurt
branch
Bilateral swap line 400 billion 200 billion 350 billion**
RQFII quota 270 billion 80 billion 80 billion
RMB denominated
bonds issued
116 billion 13.1 billion 1 billion
Infrastructure RTGS RTGS with
extended operating
hours (20.5h)
RTGS with
extended operating
hours (20.5h)
* All data are denominated in RMB
**The 350 billion BSA is given to ECB
Settlement Currency Investment Currency Reserve Currency

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Political and economic stability
Sound legal system and comprehensive regulatory
framework
Effective risk management
Considerable track record of innovation
Experience in capital markets trades

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RMB Hubs in the Globe

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Main Advantages of Three Global Hubs
• Hong Kong
Gateway toward Chinese market and policy initiatives
Large RMB business base and strong trade and investment relationship
Advantageous financial infrastructure
• London
World largest FX trading center
European time zone convenience: 15(6):30-23(4):30, 9:00-16:00 (hk)
• Frankfurt
Largest trade partner in Europe, with government Agreement to use more
RMB and Euros in settlement trade
European time zone convenience: 15:00-23:00

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RMB Deposits in Hong Kong and London
0
2
4
6
8
10
12
14
16
0
200
400
600
800
1000
RMBDepositinLondon
RMBDepositinHongKong
Year
RMB Deposit Amount
Hong Kong/ billion London/ billion
• Deposit in Hong Kong
surges after 2010
 Chinese government
promoted a new series
of RMB policies in Jun
2010
• Deposit in London
fluctuates
 Level remains as Hong
Kong in 2004
Source: HKMA, city of London

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RMB Deposits in Hong Kong and London
• Loan in Hong Kong
 Increase at an annual
rate of 30% - 40%
• Loan-to-Deposit ratio
remains low
 Recently above 15%
Source: HKMA
0%
5%
10%
15%
20%
0
200
400
600
800
1000
2012 2013 2014.9
LoantoDeposit
DepositandLoaninBillionRMB
Year
RMB Deposit and Loan in Hong Kong
Deposit/ billion Loan/ billion Loan to Deposit
RMB Loan and Loan-to-Debt ratio in Hong Kong

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Trade Volume between Mainland China, Hong Kong, UK and Germany
Source: Ministry of Commerce of the People's Republic of China
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0
50
100
150
200
250
300
350
400
450
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GrowthRate
Export&ImportinBillionUSD
Year
Mainland-Hong Kong Trade Volume
Hong Kong Growth
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0
50
100
150
200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GrowthRate
Export&ImportinBillionUSD
Year
China-UK/ Germany Trade Volume
UK Germany UK Growth Germany Growth

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RMB trade settlement between Mainland China and UK
Sources: city of London
• Quota is of concern
 The settlement amount
declines sharply in the
second half year partly
because that quota is gone.
• Quota is renewed annually 0
5
10
15
20
25
30
2011 2012 H1 2012 H2 2013 H1 2013 H2
inbillionRMB
Year
London Trade Finance Denominated in RMB
Letters of Credit Import Financing Export Financing Total

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FDI Flows into China Mainland
Source: MOFCOM
0
0.5
1
1.5
2
2.5
0
20
40
60
80
100
2009 2010 2011 2012 2013
inBillionUSD(UK,Germany)
inBillionUSD(HongKong)
Year
China's FDI
Hong Kong UK Germany
• 66% of FDI cash
flows from Hong
Kong in 2013
34%
39%
1%
4%
3%
2%
17%
China's FDI Structure of 2014H1
Distribution Service
Other Service
Agriculture
Computer &
Communication
Transportation
Manufactoring
Chemical Engineering

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OFDI Flows out of China Mainland
Source: MOFCOM
• 58% of OFDI cash
flows into Hong
Kong in 2013
0
2
4
6
8
10
0
100
200
300
400
500
2006 2007 2008 2009 2010 2011 2012 2013
inBillionUSD(UK,Germany)
inBillionUSD(HongKong)
Year
China's Outbound FDI
Hong Kong UK Germany

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Issuance of Offshore RMB Bonds
Source: Thomson Reuters
49%
20%
3%
4%
4%
20%
Offshore RMB bonds issued by countries
in 2010-2014
Mainland Hong Kong United States Germany South Korea Other
Total: $ 56.6 billion
• Dim Sum bond
 Outstanding:
¥237.8 billion (2012)
¥309.2 billion (2013)
Growth: 30.0%
 Issuance:
¥112.2 billion (2012)
¥116.0 billion (2013)
Growth: 3.4%
• Others
 Includes UK, France,
Taiwan, Russia,
Singapore, etc.

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RDFII Quota Possessed around the Globe
Sources: SAFE
RQFII Quota (Oct. 30th 2014) In Billion RMB
Hong Kong 270
Taiwan 100
UK 96
Singapore 88
France 60
0
1
2
3
4
5
6
0
50
100
150
200
250
300
2011 2012 2013 2014.1
GrowthRate
inbillionRMB
RQFII Quota in Hong Kong
Hong Kong Growth

RMB Trading and Settlement
34
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0
1
2
3
4
5
0
1000
2000
3000
4000
5000
2010 2011 2012 2013
GrowthRate
inBillionRMB
HK Cross Border RMB Settlement
Cross Border RMB Settlement Growth
Source: HKMA, city of London
• Cross Border RMB
settlement increases
 Faster than the growth
rate of trade
0
0.5
1
1.5
0
5
10
2011 2012 2013
InbillionRMB
Year
RMB Product Traded in London
Nondeliverable Product Spot FX
Forwards FX Swaps
FX Options
• Trading of non-
deliverable products are
decreasing, while the
opposite is increasing.

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China-Africa Cooperation

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China-Africa Trade and Cooperation
1950 1979 2000 2007 2009 2012 2013 2020
Beginning
 Limited
Cooperation
 Low trade volume:
US $12 million
Development
 Forum on China-Africa
Cooperation (FOCAC),
50 African states
including South Africa,
Angola, Nigeria etc.
 Trade volume: US
$10.6 billion
Fast Growth
 Special Loan for the
Development of African
SMEs (US $10 billion)
 China became Africa's
largest trade partner
$91.07 billion
New High
 Offer US $20 billion
loan in 3 years to
African states mainly
for infrastructure
projects
$209.6 billion
Adjustment
 The reform and
opening-up policy
$0.82 billion
Speed-up
 China-Africa
Development Fund.
Size reached US $5
billion
$73.57 billion
Expansion Period
 60% of import from the 30
least developed Africa states
is duty free
 Bilateral Investment Treaties
with 32 African states to
protect private investment
 Trade volume: US $198.49
billion
New Stage
 USD $400
billion
estimated
Source: National Bureau of Statistics of the People's Republic of China
2014
In-depth Cooperation
 So far, South Africa,
Nigeria, Angola, Tanzania
and Kenya hold RMB as a
foreign exchange reserve
currency
 Trade volume: US $104.77
billion for first half year

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0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China-Africa Trade Volume (2000-2013)
Unit: US$ billion
Total Volume China Export China Import

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Source: Ministry of Commerce of the People's Republic of China;
National Bureau of Statistics of the People's Republic of China
0 10 20 30 40 50 60 70
Algeria
Egypt
Nigeria
Angola
South Africa
Top 5 Trade Partners in 2013 (US $ Billion)
Trade Volume
0
10
20
30
40
50
60
70
2009 2010 2011 2012 2013
Trade Volume of Top 5 Partners (2009-2013, US $ Billion)
Algeria Egypt Nigeria Angola South Africa

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 South Africa
 Trade structure optimization: China’s
largest trade partner in Africa. In the past,
China mainly imports minerals and primary
goods, exports final goods and have trade
surplus. In recent years, South Africa
exports more high value-added goods, such
as motor vehicles, engine parts, electronic
transformer and wines, imports machinery
electrical equipment and textile. China have
trade deficit.
 Bilateral investment: Investment expands
from home appliance, mining and smelting
to finance, telecommunication, new energy
and infrastructure.
 Future cooperation: South Africa is
promoting the development of
manufacturing industry and encourage
Chinese companies’ investment. South
Africa will support the industries that create
jobs and produce value-added products,
including automobile, steel, agricultural
products processing etc. South Africa plan
to invest US $72 billion in infrastructure,
which is a great opportunity for Chinese
companies.
0
20
40
60
80
2009 2010 2011 2012 2013
Trade with South Africa (US$
Billion)
0
1
2
3
4
5
6
2009 2010 2011 2012 2013
China’s Cumulative OFDI to South
Africa (US$ Billion)
The Stock of FDI to South Africa
39

0
10
20
30
40
2009 2010 2011 2012 2013
Trade with Angola (US$ Billion)
 Angola
 Trade: China’s second largest trade partner and largest crude oil supplier in Africa. China
mainly imports crude oil and minerals from Angola, while exports electrical equipment,
steel and textile.
 Bilateral investment: Angola’ investment to China is much less than China’s investment
to Angola. Before 2014, China’s cumulative investment to Angola was more than US $8
billion, mainly in oil, infrastructure, agriculture, telecommunication etc.
 Future cooperation: First, Angola will make efforts to improve infrastructure and
strengthen related cooperation with China. Second, Angola has large amount of land to be
cultivated while China can provide funds and technologies to increase agriculture
production. Third, Angola has large demand for industrial products after war. China will
support domestic companies to invest in Angola’s manufacturing industry.
40
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 Nigeria
 Trade: The biggest economy in Africa.
China’s third largest trade partner in
Africa. China mainly imports crude oil,
natural gas and agricultural products,
while exports motorcycle, machinery,
clothing, home appliances etc. Nigeria is
China’s largest export market for
motorcycle.
 Bilateral investment: Investment involves
agriculture, textile, mining, radio and
television, home appliance etc. Chinese
companies established factories in Lecky
and Ogun economic and trade cooperation
zone.
 Nigeria is the first African state to hold
RMB as a foreign exchange reserve
currency.
 Future cooperation: More investment in
textile, clothing, home appliance
industries to meet Nigeria’s demand. More
cooperation in rice breeding tropical crops
and infrastructure construction.
0
5
10
15
2009 2010 2011 2012 2013
Trade with Nigeria (US$ Billion)
0
0.5
1
1.5
2
2.5
2009 2010 2011 2012 2013
China’s Cumulative OFDI to Nigeria
(US$ Billion)
The Stock of FDI to Nigeria

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Chinese Companies in Africa
Industry Company Location Project Other Info
Infrastructure
Sinohydro
Corporation
Algeria
Mina Irrigation Expansion Project
SOUF Water Supply
Angola
Irrigation projects
Kuito Water Supply Works
Botswana
Dikgatlhong Dam Irrigation scheme
Lotsane Dam
DR Congo
Busanga Hydropower Station
Copper and Cobalt Mining Project
Sudan
Merowe Hydropower Project
El Renk-Malakal Road Project
China Road and
Bridge Corporation
(CRBC)
Kenya Mtito Andei - Bachuma Gate Road
Ethiopia Addis Ababa Beltway
Mauritania Nouakchott Friendship port
China Railway
Construction
Corporation Limited
(CRCC)
Nigeria
Railway Modernization Project $8.3 billion
Railway Cooperation Framework $13 billion
Algeria East- West Expressway Project

Industry Company Location Project Other Info
Energy
China national
petroleum
Corporation (CNPC)
Tanzania Gas pipeline project $1.2 billion
Niger Agadem Oil and gas project
China Petroleum &
Chemical Corporation
(Sinopec)
Angola
Angola Block 18 deep-water oil
project
50% shares
Nigeria Block OML138 oil field (20% shares) $2.46 billion
Telecommuni
cation
Zhongxing Telecom
Ltd (ZTE)
Ethiopia Telecom network construction project Term 1, 2, 3
South
Africa
Optical transmission network
Angola Bengla Metropolitan area network
Huawei Technologies
Ethiopia
Telecom network construction project Term 3
Addis Ababa Light rail telecom system
Nigeria Rural telecommunication network
Mining
China National
Nuclear
Corporation(CNNC)
Namibia Langer Heinrich uranium mine (25%) $190 million
China Non-Ferrous
Metals and
Construction (CNMC)
Zambia
Chambishi Copper Mines
Luanshya Copper Mines
43
Chinese Companies in Africa

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China-Russia Cooperation

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China-Russia Trade and Cooperation
1993 1999 2000 2001 2009 2010 2012 2013
Early Stage
 Low trade volume
US $7.68 billion
New Beginning
 Economic Recovery
 2001-2005 Trade
Agreement
$8 billion
Development
 China and Russia’s
Investment
Cooperation Plan
$38.75 billion
Fast Growth
 Russia-China
Investment Fund
US $2 billion
$88.16 billion
Collapse
 Asian Crisis
 Unstable conditions
and poor economy
$5.72 billion
Stable Growth
 Sino-Russian Treaty
of Friendship
$10.67 billion
Speed-up
 China became Russia's
largest trade partner
 Agreement on natural
gas supply from Russia
to China
$55.53 billion
New stage
 Russia became
China’s third largest
crude oil exporter
 China-Russia Expo
 Trade volume: USD
$89.26 billion
2014
In-depth Cooperation
 The PBOC and Central
Bank of Russia signed a
3-year bilateral currency
swap agreement of
RMB 150 billion
 Trade volume: US $100
billion estimated

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0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China-Russia Trade Volume (2004-2013)
Unit: US$ billion

Minerals
51.7%
Wood and
Wooden Products
13.4%
Chemical product
9.5%
Mechanical and electrical
products
6.8%
Live animal, live animal
product
6.1%
Cellulose pulp; Paper
4.7%
Others
7.7%
Structure of China’s Import from Russia 2013
Minerals Wood and Wooden Products
Chemical product Mechanical and electrical products
Live animal, live animal product Cellulose pulp; Paper
Others
47
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Mechanical and electrical
products
45.5%
Textiles and raw
materials
10.0%
Base metals and metal
products
7.9%
Furniture, toys,
miscellaneous products
6.5%
Light industrial products
5.6%
Transportation
equipment
5.1%
Others
19.4%
Structure of China’s Export to Russia 2013
Mechanical and electrical products Textiles and raw materials
Base metals and metal products Furniture, toys, miscellaneous products
Light industrial products Transportation equipment
Others

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0
5
10
2008 2009 2010 2011 2012 2013
China’s Cumulative OFDI to
Russia (2008-2013)
Unit: US$ Billion
China’s Cumulative OFDI to Russia
0
2
4
6
2008 2009 2010 2011 2012 2013
China's net ODFI to Russia
(2008-2013)
Unit: US$ Billion
China's net ODFI to Russia
• Geographical distribution: big cities, e.g.
Moscow and St. Petersburg (tax advantages,
advanced market infrastructure and high ability
to pay); Siberia and the far east (rich natural
resources and near to China)
• Sectors: forestry, manufacturing industry,
mining industry and real estate
• Complementarity: China gets Natural resources
intensive products and Russia gets labor
intensive products
• Disadvantages: lack of labor force; Corruption
of judicial system and regulatory organizations;
unstable economic and political environment;
complicated market environment; different
culture and consumer habits
• Opportunities: sanctions against Russia
strengthen China-Russia relation; large
investment in infrastructure construction;
improvement of business environment

Chinese Companies in Russia
Industry Company Time Project Other Info
Energy
China national
petroleum
Corporation (CNPC)
2013.11 Yamal liquefied natural gas project 20% shares
Infrastructure
China Railway Group
Limited (CRG)
2014.6
Cooperation agreement with
Roszheldorproject
China
Communications
Construction
Company Ltd.
(CCCC)
2014.8 Momorandum of Understanding
China Road and
Bridge Corporation
(CRBC)
2007.11 Infrastructure construction project
Haishenwai
& Sochi
Mining
Jilin HOROC
Nonferrous Metal
Group
2013.11 Mines in Kamchatka
China Metallurgical
Group Corporation
(MCC)
2010.12
St. Petersburg cement clinker
production line
2012.3
KIMKAN iron mine beneficiation
project

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Appendix

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Concept in RMB Internationalization
• Qualified Foreign Institutional Investor - QFII
 A program that permits certain licensed international investors to participate in China's mainland stock
exchanges. The Qualified Foreign Institutional Investor program was launched by the People's Republic
of China in 2002 to allow foreign investors access to its stock exchanges in Shanghai and Shenzhen.
Prior to QFII, foreign investors were not able to buy or sell shares on China's stock exchanges because of
China's tight capital controls. With the launch of the QFII program, licensed investors can buy and sell
yuan-denominated "A" shares. Foreign access to these shares is limited by specified quotas that
determine the amount of money that the licensed foreign investors are permitted to invest in China's
capital markets.
• Dim Sum Bond
 A bond denominated in Chinese yuan and issued in Hong Kong. Dim sum bonds are attractive to foreign
investors who desire exposure to yuan-denominated assets, but are restricted by China's capital controls
from investing in domestic Chinese debt. The issuers of dim sum bonds are largely entities based in
China or Hong Kong, and occasionally foreign companies. The term is derived from the Chinese cuisine
that involves serving a variety of small delicacies and is especially popular in Hong Kong.
• Currency Swap
 A swap that involves the exchange of principal and interest in one currency for the same in another
currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on
a company's balance sheet.
• Foreign Direct Investment – FDI
 An investment made by a company or entity based in one country, into a company or entity based in
another country. Foreign direct investments differ substantially from indirect investments such as
portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange.
Entities making direct investments typically have a significant degree of influence and control over the
company into which the investment is made. Open economies with skilled workforces and good growth
prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated
economies.

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• Outward Direct Investment – ODI
 A business strategy where a domestic firm expands its operations to a foreign country either via a Green
field investment, merger/acquisition and/or expansion of an existing foreign facility. Employing outward
direct investment is a natural progression for firms as better business opportunities will be available in
foreign countries when domestic markets become too saturated.
• Real Effective Exchange Rate – REER
 The weighted average of a country's currency relative to an index or basket of other major currencies
adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in
terms of one country's currency, with each other country within the index. This exchange rate is used to
determine an individual country's currency value relative to the other major currencies in the index, as
adjusted for the effects of inflation. All currencies within the said index are the major currencies being
traded today: U.S. dollar, Japanese yen, euro, etc.
This is also the value that an individual consumer will pay for an imported good at the consumer level. This
price will include any tariffs and transactions costs associated with importing the good.
Concept in RMB Internationalization

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Concept of RTGS
• Real time gross settlement systems (RTGS) are specialist funds transfer systems where transfer of money or
securities takes place from one bank to another on a "real time" and on "gross" basis.
• Settlement in "real time" means payment transaction is not subjected to any waiting period. "Gross settlement"
means the transaction is settled on one to one basis without bundling or netting with any other transaction.
• This "electronic" payment system is normally maintained or controlled by the central bank of a country.
• The World Bank has been paying increasing attention to payment system development as a key component of
the financial infrastructure of a country, and has provided various forms of assistance to over 100 countries.

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Existing RTGS Systems
Country RTGS Country RTGS
Albania AECH Croatia HSVP (Hrvatski sustav velikih
plaćanja)
Angola SPTR (Sistema de pagamentos em
tempo real)
Czech Republic CERTIS (Czech Express Real
Time Interbank Gross Settlement
System)
Azerbaijan AZIPS (Azerbaijan Interbank
Payment System)
Egypt RTGS
Australia RITS (Reserve Bank Information
and Transfer System)
European union TARGET2
Bosnia and Herzegovina RTGS Hong Kong CHATS(Clearing House
Automated Transfer System)
Bulgaria RINGS (Real-time INterbank
Gross-settlement System)
Hungary VIBER (Valós Idejű Bruttó
Elszámolási Rendszer)
Brazil STR (Sistema de Transferência de
Reservas)
India RTGS, NEFT, IMPS
Canada LVTS (Large Value Transfer
System)
Indonesia BI-RTGS (Sistem Bank Indonesia
Real Time Gross Settlement)
China CNAPS (China National Advanced
Payment System)
Iran SATNA ( ‫سامانه‬‫تسویه‬‫ناخالص‬‫آنی‬ )
Chile LBTR/CAS (Liquidación Bruta en
Tiempo Real)
Japan BOJ-NET (Bank of Japan
Financial Network System)

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Kenya KEPSS (Kenya Electronic Payment
and Settlement System)
Pakistan PRISM (Pakistan Real Time
Inter-Bank Settlement
Mechanism)
Korea BOK-WIRE+ (The Bank of Korea
Financial Wire Network,한은금융
망)
Peru LBTR (Liquidación Bruta en
Tiempo Real)
Kuwait KASSIP (Kuwait's Automated
Settlement System for Inter-
Participant Payments)
Philippines PhilPaSS
Macedonia MIPS (Macedonian Interbank
Payment System)
Poland SORBNET and ELIXIR
Malawi MITASS (Malawi Interbank
Settlement System)
Russia BESP (Banking Electronic Speed
Payment System)
Malaysia RENTAS (Real Time Electronic
Transfer of Funds and Securities)
Romania ReGIS system
Mexico SPEI (Sistema de Pagos
Electrónicos Interbancarios)
Saudi Arabia SARIE (Saudi Arabian Riyal
Interbank Express)
Namibia NISS (Namibia Inter-bank
Settlement System)
Singapore MEPS+ (MAS Electronic
Payment System Plus)
New Zealand ESAS (Exchange Settlement
Account System)
South Africa SAMOS (The South African
Multiple Option Settlement)
Nigeria CIFTS (CBN Inter-Bank Funds
Transfer System)
Sri Lanka LankaSettle (RTGS/SSSS)

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Sweden RIX (Riksbankens system för
överföring av kontoförda pengar)
Turkey EFT (Electronic Fund Transfer)
Switzerland SIC (Swiss Interbank Clearing) Ukraine SEP (System of Electronic
Payments of the National Bank of
Ukraine)
Taiwan CIFS (CBC Interbank Funds
Transfer System)
United Kingdom CHAPS (Clearing House
Automated Payment System)
Tanzania TIS (Tanzania interbank settlement
system)
United States Fedwire
Thailand BAHTNET (Bank of Thailand
Automated High value Transfer
Network)
Zambia ZIPSS-Zambian Inter-bank
Payment and Settlement System

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Milestones in Hong Kong
2003-2006
2003:
BOC(HK) is
established as
an RMB
clearing Bank.
2004: Hong
Kong banks are
allowed to offer
personal RMB
services to local
Residents.
2007-2009
2007: The first
offshore RMB
bond is issued
at Hong Kong.
2008: HKMA
signs ¥200bn
currency swap
with PBOC.
2009: The first
offshore RMB
sovereign bond
is issued at
Hong Kong.
2010-2011
2011: The first
RMB IPO is
listed on the
Hong Kong
Stock
Exchange.
2011: The
RQFII pilot
scheme is
launched in
Hong.
2012-2013
2012: The first
RQFII A-ETF is
listed on the
Hong Kong.
2013: HKMA
launches an
interbank
reference rate
for offshore
Yuan.
2014
2014: Shanghai-
Hong Kong
Stock Connect
is prepared.

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Milestones in London
2011
UK-China economic
and financial
dialogue planed to
build a renminbi
business center.
2012
London off-shore
Renminbi business
center construction
project set off.
HSBC issued the
first renminbi off-
shore bond outside
Asia.
2013
London was given a
quota of ￥80
billion in RQFII.
Pounds directly
traded with
renminbi.
2014
Bank of England
was denominated as
a clearing bank in
London by PBOC.
The Renminbi
denominated
sovereign bond was
first issued in
London.

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Milestones in Frankfurt
2011
The first Renminbi
denominated bonds
by German
companies were
issued.
2012
Germany and China
agreed to use more
RMB and Euros to
settle their trade.
2013
The resolution to
build Frankfurt as a
Renminbi business
center was
published.
2014
Deutsche
Bundesbank will
establish Renminbi
settling and clearing
service in Frankfurt
as the first hub for
trades clearing
outside Asia.

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Disclaimer
Disclaimer
This presentation is designed for MCM Partners customers exclusively for internal use of the client, and directly presented and
delivered to the client (including the client's subsidiaries, the following referred to as the "Company"). This statement is intended to
assist companies on the feasibility of a certain or several preliminary assessment of the potential transaction, the company has no
right to publish or disclose to any other party all or part of this statement. This statement is for discussion purposes only, and can
only be read in conjunction combined MCM Partners report. Unless a written consent is obtained from MCM Partners, this report or
any content of it shall not be used for any other purpose.
Management information represented in this report is solely based on the company's forecast, our view, the above forecasts, the
situation and perspectives may change at any time. This report is based on the information obtained from publicly available sources
or provided to us by the company or a company representative, or a reviewed information by us. We assume that these data are
accurate and complete without an independent review. In addition, we do not provide analysis on the company’s business, assets,
stocks or its affiliates. MCM Partners does not evaluate nor represent the actual transaction value that may result or any legal, tax
and accounting impact generated by it. Information contained in this report does not take into account the impact results from any
potential changes in control over one or a number of potential transactions, of which the transaction(s) may have a significant
impact on the valuation or other areas.
MCM Partners policy prohibits its employees to obtain business for consideration or inducement or reward, directly or indirectly, to
provide favourable research rating or price target of a particular company, or to provide change in rating or price target. MCM
Partners also prohibits its analysts to receive compensation from investment banks involved in the transaction, unless such
participation is to achieve maximum benefits for the investors.
This report does not constitute MCM Partners to underwrite, subscribe or placing any securities, provide or arrange credit or to
provide any commitment to any other services.

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