Direct currency trading deal with China to benefit small businesses

A deal expected to be signed today between Australia and China to allow direct currency trading could signal lower exchange rates between the countries and a possible win for small business.

Should the deal go ahead, it will coincide with the end of the Boao forum which has seen a delegation of high profile Australian business people and government officials travel to China to meet with their Chinese counterparts over the weekend.

While the business representatives at the Boao forum were predominantly from large corporations, it is likely a number of the decisions will have a flow-on effect to small businesses, including an agreement signed to have biannual meetings and regular personal contact to help each other navigate regulatory obstacles.

Prime Minister Julia Gillard met with China’s President Xi Jinping over the weekend and discussed the countries’ bilateral relationship, with Gillard expected to sign off on a direct currency trading deal in Shanghai today.

Should the deal go ahead, Australia will become the third country to have a direct currency conversion agreement with China.

Australian Institute of Export general manager Peter Mace told SmartCompany such an arrangement would be “a bit of a coup” for Australia.

“Currently, only the United States and Japan have direct conversion with the yuan and Australia would be the third country. Obviously the Prime Minister is pushing for it and the banking sector also support it.

“It will be positive for importers and exporters because there will be a slightly better exchange rate because it will cut out going through the United States,” he says.

A survey in 2012 by research company RFi of 500 Australian SMEs found 34% of them traded with China and more than 40% of SMEs intended to settle trade transactions in the yuan.

Direct trading will mean the two currencies can bypass the US dollar when trading, effectively reducing transaction costs and lowering the exchange rate.

Such a gain would be a win for businesses which operate in both countries, Mace says.

“There is a big push by China to get more trading in their currency and it will make Australian businesses more competitive in the market,” he says.

Mace says there are good opportunities in China for small businesses in the wine production sector, along with baby products.

“There are good opportunities to build up the market share of the wine industry in China. While many winemakers have been struggling in the European and UK markets, the Chinese are keen on good labels,” he says.

“With the one-child policy in China, they can afford to spend a lot more money on their children.”

Since 2004, China has been Australia’s largest trading partner, according to the Australian Bureau of Statistics. Currently, approximately 27% of Australia’s exports are to China and 15% of imports are from China.