Automaker 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.
As per the company’s official statement, the automaker carried out a Rs 53 million (equivalent to 3 million Chinese yuan) letter of credit (LC). The transaction was done with Bank of China Limited Pakistan (ICBC).
“We had a CNY (Chinese Yuan) LC established through ICBC during March 2018 amounting to CNY3 million (approximating to Rs 53 million),” Ghandhara Nissan’s official said.
He also added that “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. The Chinese manufacturers include Dongfeng Commercial Vehicle Co. Limited, China and JAC Motors, China.
GHNL’s official said that 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 the letter of credit is established through any local bank.
He also added that “This can be reduced by having LCs established through Chinese banks like ICBC. 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 a local English Newspaper that a 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 the international use of yuan in different regions of the world, especially across the route of its Belt and Road initiative.
The State Bank of Pakistan is encouraging Chinese lenders to establish a local yuan settlement and clearing mechanism in Pakistan.
China is Pakistan’s largest trading partner with a 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.