|The Bahamas Investor Magazine
January 1, 2016
January 1, 2016
China as a global force for investment has been well documented. From power stations to megaresorts to infrastructure projects, there is hardly a nation that has not received some form of financing from the world’s fastest growing economic powerhouse, The Bahamas included. With the world seemingly awash with yuan, The Bahamas is looking at a variety of avenues to further bolster the relationship and grow investment.
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Over recent years, the government of China has been either directly or indirectly involved in a number of large scale developments in The Bahamas. The assistance has taken two forms: gifts and financing. The construction of Nassau’s state-of-the- art Thomas A Robinson National Stadium and the airport highway were both gifted to the Bahamian people as part of a conscious nurturing by Beijing of strategic partnerships in the region. Involvement in other large projects, including Baha Mar, has been in the form of state funding through the Exim Bank of China and construction through China State Engineering Corp.
For its part, The Bahamas has been keen to engage the Chinese, with high-level delegations of politicians and industry representatives frequently visiting Asia to further deepen ties and seek out new business. Minister of Financial Services Hope Strachan (see page 68) visited Beijing towards the end of last year as part of what she calls an “aggressive” marketing tour of Asia with stops in the Chinese capital, Hong Kong, Shanghai and Singapore. The government also sponsored the China Offshore Summit in Shanghai, where it had a “captive audience” with a reach of over 1,000 industry professionals. “It was a mission with the aim of carrying the message that The Bahamas is still a premier destination with advantages that are second to none,” said Strachan, speaking at recent conference in Nassau. “The response was remarkable.”
One new avenue in particular could prove very beneficial to The Bahamas. Earlier in the year, Strachan announced that the President of the People’s Republic of China Xi Jinping had met with Prime Minister Perry Christie and agreed in principle that China would allow The Bahamas to trade in Chinese yuan (RMB), which has recently been recognized by the IMF as a Main World Currency. Saying that she had met with the People’s Bank of China during her trip in November last year, Minister Strachan added: “We know there are possibilities that can flow from establishing this platform. It can create wonderful opportunities.”
So, what are the opportunities? Presenting her contribution to the 2015 Budget Debate in the House of Assembly, Minister Strachan said that establishing The Bahamas as a yuan centre is a significant win for the country that cements its position as the leader in the region for financial services. “It would also assist in increasing trade between China and The Bahamas and indeed the region by enabling China-Bahamas trade to be denominated in Chinese RMB and Bahamian dollars, rather than the current practice of using US dollars as the intermediate currency.”
She said that the potential benefits of this development include:
• Currency exchange savings from direct bilateral transactions could increase China-Bahamas trade by hundreds of millions of dollars.
• The Bahamas could extend RMB settlement services throughout the region.
• Same-day or expedited currency exchange for time-sensitive transactions could be conducted, creating cost savings (ie exchange rates/time), increasing the overall convenience and efficiency of international BSD- RMB payment transactions.
• Advantages for Bahamian importers who can now access a new market more readily for goods for prices quoted in RMB-BSD.
• The creation of jobs, through settlement centre operations, ancillary financial services, and indirect job creation through increased trade and investment with China.
• Positive impacts on goodwill, business cooperation, trade and investment between China and The Bahamas.
Direct trade advantage
How close The Bahamas is to realizing these benefits is not so clear. “There is much foundational work to be done on this issue. My ministry will continue to engage with the relevant authorities in this effort,” says Strachan. In a first step, China has announced plans for the China International Payment System (CIPS) to process cross-border yuan transactions, which was scheduled to become fully operational by the end of last year.
Strachan adds that a yuan trading hub will support a more competitive financial sector, result in direct trade benefits, encourage more investment in The Bahamas, and strengthen commercial and diplomatic relations with China. “As The Bahamas seeks to broaden its base of trading partners beyond the US, building the reach and expertise of its financial sector in emerging economies such as Brazil, Mexico and China is critical.”
Immediate past chief executive officer of the Bahamas Financial Services Board Aliya Allen says that the acknowledgement of The Bahamas as a viable location for currency trading is a reflection of its good standing with its Chinese partners. “Though details are being negotiated, The Bahamas is set to become only the second recognized hub for RMB trading and settlement in the Americas. This acknowledges not only the strength of the diplomatic relationship and friendship that exists between The Bahamas government and the Chinese government, but also of its confidence in The Bahamas’ financial infrastructure that has been refined and developed over the course of 80 plus years.”
She further notes that apart from ensuring opportunities for trade and trade financing, it is a glowing endorsement of The Bahamas’ financial infrastructure for settlement and clearing and supports the jurisdiction’s capacity and burnishes our reputation as a major financial centre. “There are a myriad of opportunities. We have always supported the initiative as seen by our facilitation of major events last year in Beijing and Hong Kong.”
Apart from encouraging more trade relationships and exports given the ability to settle in RMB, there is the potential for Bahamas institutions to invest directly in yuan denominated bonds and securities without the downside of conversion.
The former BFSB chief says that Chinese investors and institutions are likely to view The Bahamas as a much bigger financial player and the international and global banks that want to access Chinese clients wishing to transact in their own currency will undoubtedly recognize that The Bahamas’ location makes it a very attractive proposition. “The Bahamas has long recognized that it could act as a bridging gateway between South America and Asia utilizing its depth of expertise in financial services to facilitate trading relationships and trade finance.”
The development of The Bahamas as a hub for trading RMB is the result of years of hard work in negotiating this arrangement with the Chinese government, Allen adds. “The Ministry of Financial Services has been meeting for the last two years with Chinese authorities to develop this new financial market, and it was a topic of discussion and negotiation on recent visits to China.”