China-South Africa yuan clearing agreement ‘to boost investment and trade’

The South African Reserve Bank (SARB) said on 7 July that under the terms of a memorandum of understanding (MOU) with the People's Bank of China, the banks will “coordinate and cooperate on the supervision, oversight and clearing” of yuan in South Africa.

“The MOU signifies another important milestone reached in the continuous joint effort to build capabilities in the South African financial markets to better serve bilateral trade, investment and financial flows between China and South Africa,” the SARB said.

According to the SARB, China is currently South Africa’s largest export partner. The yuan clearing business “will be immensely valuable as corporates will benefit greatly” from trading and settling in yuan, the SARB said.

China’s state news agency Xinhua said the agreement represented the first yuan clearing arrangement in Africa. The bank that will conduct the clearing is yet to be designated.

In a separate announcement Xinhua said the China Commercial Bank (CCBank) is launching trial operations in Tanzania this month after two years of preparatory work.

According to Xinhua, CCBank is the first private African bank owned by Chinese investors. “It was founded in Tanzania and the majority of its core employees are Tanzanians, with a Chinese chief executive officer, Yan Gang.”

Yan told Xinhua that his team’s most challenging task to date had been establishing a purpose-built banking system. “All big foreign banks here kept their existing systems when they reached Tanzania, and they transferred data abroad through the internet. But for my team, we did not have that privilege. We had to hire a service provider to build a new system," he said. The first phase of this project was completed last March by Oracle.

CCBank opened accounts for its employees and successfully tested the system by paying salaries into the accounts, Yan said.

All data equipment, which Yan said was “specially designed to suit the bank’s needs and meet international standards”, was manufactured by Huawei in China.

Last month, Tanzania’s government selected Huawei as its technical advisor to help in the development of the country’s information and communications technology sector.

In October 2014, Tanzania announced the signing of investment deals with China worth more than $1.7bn, including plans to build a ‘satellite city’ to ease congestion in Dar es Salaam and $85m in grants and zero-interest loans from China for unspecified projects.

According to figures from the China Business Network, China’s total direct investment in Tanzania soared from $700m in 2011 to $2.1bn in 2012, with investments focused on railways, ports, buildings, road construction, gas pipelines and wind power farms.

A member of the World Economic Forum’s Global Agenda Council on China, Martyn Davies, said earlier this year that there is an African “incline” towards China’s commercial sphere of influence.

Davies, who is also the chief executive officer of Frontier Advisory, a research, strategy and advisory firm that specialises in emerging markets, said: “As China’s strategy towards Africa matures, so too must Africa’s strategy towards China. Beijing is no longer just an actor in Africa’s resources sector but is broadening the scope of its commercial foray into the continent. African governments need to respond accordingly and be more agile in their policy-making vis-a-vis China’s engagement.”