1. Doing business in Hong Kong Your privileged connection to China

2. Some basics on Hong Kong Hong Kong is part of China since 1997 It’s status as a Special Administrative Region is laid down in the Basic Law under the principle “1 country 2 systems”

3. Why do business in Hong Kong ? Hong Kong as a safe haven for your China investment If you think “going into China” with your business, then also consider “going via Hong Kong” Hong Kong offers a few advantages that are not necessarily present in case of a direct entry into China Hong Kong is part of China “1 country, 2 systems” (Basic Law) Hong Kong is in the ranking of freeeconomies (WSJ and Fraser Institute) 1 st Hong Kong is lowest tax misery country in the world (Forbes tax misery index) 3 rd Hong Kong is financial centre in the world (GFCI-9, March 2011) 3 rd  Free flow of capital  Fully convertible currency  No lending restrictions  Full range of financial services  State of the art business infrastructure  Companies can be set up in a few days  English as the general business language  Easy and low tax regime  Double Tax Agreements (since recently also with CZ)  Hong Kong as prime offshore Renminbi centre  China’s 12 th 5Y Plan reconfirmed Hong Kong’s crucial role in the development of Mainland China  CEPA free trade agreement with Mainland China  Legal system under ‘rule of law’ with higher legal certainty

4. Why do business in Hong Kong ? Hong Kong as a safe haven for your China investment Consequently it is common to see the following structure being implemented by European companies pursuing business opportunities in Mainland China European business Opportunities in China HQ in Europe Rep.Office / WFOE in PRC Hong Kong Holding Co in HK 100% Suppliers and clients in PRC Trade

5. What do we offer you in Hong Kong ? KBC Hong Kong branch as an enabler for your business in Hong Kong Getting started Your company setup in Hong Kong We maintain good relations with different company secretarial firms and consultants that can help you in setting up the right structure for your needs Your account opening at KBC Hong Kong For your account opening in Hong Kong, we liaise with your company secretary in Hong Kong and with your relationship manager in CSOB Physical presence in Hong Kong is not required to open accounts with KBC Hong Kong Once your company is constituted with all necessary documents, we open accounts within 3 days Limited but relevant service offer for your Hong Kong business Cash management and payments Working capital and investment loans Trade Finance Treasury Corporate Finance advisory NEW!: RMB services

6. What do we offer you in Hong Kong ? NEW! : KBC offering RMB services If you were in Hong Kong recently, you cannot have missed the importance of Hong Kong as an offshore centre for the internationalisation of the Renminbi

7. ... 6 The internationalisation of the RMB - Why? Many good reasons for China to encourage the international use of RMB Natural evolution International standing FX risk “The dollar trap” refers to the 1.8trn FX reserves in USD making China overly dependent on the American dollar, causing FX and liquidity risks. Encouraging the international use of the RMB should reduce the FX inflow “Sharing the RMB risk with the world” by progressively translating the Chinese claims on the outside world into RMB If China has the ambition to join the US and EU as a key player in the governance of the international monetary system, this is a crucial step Also, making Shanghai an international financial centre competing with Wall Street and The City by 2020 will be difficult without this evolution Empirical evidence shows the international rise of a currency goes in parallel with the economic power of a country (£, $, DEM,...) It is an anomaly that the worlds largest exporter is not using its own currency to settle that trade. If the USD might be “punching above its weight” relative to the US economy, the opposite is true for the RMB Not “If?” but “When?” The internationalisation of the RMB will happen and is actually already long overdue Not “If?” but “When?” The internationalisation of the RMB will happen and is actually already long overdue End 2010, China’s total FX reserves mount to 2.6trn USD. Source: CIA Factbook.

8. Potential roadmap The different stages are interdependent. E.g. accumulation of RMB outside the Mainland will support demand for RMB denominated investment products, while the availability of liquid RMB investment opportunities will encourage a wider adoption of RMB for trade Potential roadmap The different stages are interdependent. E.g. accumulation of RMB outside the Mainland will support demand for RMB denominated investment products, while the availability of liquid RMB investment opportunities will encourage a wider adoption of RMB for trade 7 The internationalisation of the RMB - How? There’s a commonly accepted view on how currencies internationalise... TRADE CURRENCY Use RMB as a currency to settle trade transactions between importers and exporters from and to Mainland China Volume trade settlement in RMB estimated at 6 to 7 trillion RMB by 2020 INVESTMENT CURRENCY Use RMB as a currency for investment purposes through RMB deposits, RMB bonds, RMB IPOs, etc. Estimated volumes by 2020 RMB deposits in HK: > 6 trillion RMB Offshore RMB bonds: 6-7 trillion RMB RESERVE CURRENCY RMB as a fully convertible international reserve currency Empirical evidence suggests that 1% point increase in country’s share in the world’s GDP translates in a 0.5% point increase of worldwide central banks reserve holdings in that currency Today, no meaningful holdings of domestic RMB debt by foreigners, while > 30% of US and UK government debt is held outside the country Source for 2020 volume estimates: Central Policy Unit Chatham House, London.

9. 8 The internationalisation of the RMB - How?... but this case is nevertheless unprecedented in many ways UNPRECEDENTED BALANCING ACT As a net exporting emerging country encouraging the international use of RMB while keeping control on cross- border capital flows Still an emerging country China is the first emerging country to go on this path. In the past, only fully developed countries attempted to internationalise their currency No opening of China’s capital account Foreign ownership of Chinese assets and cross-border capital flows remain tightly controlled as China fears massive inflow of speculative ‘hot money’ bringing along volatility and inflationary pressure A net exporting country As a net exporter China faces a difficult challenge in getting its currency into foreign hands through trade This is also why China is using Hong Kong as a “testing ground” for the internationalisation of the RMB and as “a firewall” against undesired effects on the Mainland The terms “testing ground” and “firewall” were coined in relation to Hong Kong’s role at the publication of China’s 12 th 5 Year Plan

10. 9 The internationalisation of the RMB - When? It is clearly happening, already today, in Hong Kong... RMB deposits in HK (in bn) 45 40 35 30 25 20 15 10 5 0 1H 20112010200920082007 Gross issuance RMB bonds in HK (in bn) 800 700 600 500 400 300 200 100 0 1H 201120102009 Global RMB trade settlement (in bn, HK part in %) Picture taken at a tram stop in Hong Kong, showing a part of HSBC’s omnipresent RMB marketing campaign Source for chart data: HKMA 500 600 0 400 300 200 100 end 2010mid 2009mid 2011mid 2010end 2009end 2008 Of which 73% HK Of which 80% HK end 2011

11. 10 The resulting RMB realities you currently face Pick your field, according to your needs OFFSHORE ONSHORE CNH Offshore participants only Free circulation offshore FX rate USD/CNH differs from USD/CNY Currently CNH more expensive than CNY (strong demand faced with limited supply) Spread will continue to exist as long as “flow back” and arbitrage opportunities are restricted CNH Offshore participants only Free circulation offshore FX rate USD/CNH differs from USD/CNY Currently CNH more expensive than CNY (strong demand faced with limited supply) Spread will continue to exist as long as “flow back” and arbitrage opportunities are restricted CNY NDF Offshore non deliverable forward market Linked to CNY FX but settled cash in USD CNY NDF Offshore non deliverable forward market Linked to CNY FX but settled cash in USD CNT Trade related CNY (max 3 months!) FX rate linked to CNY (CNT-CNY fungible) RMB agent bank needed (onshore correspondent bank or BOC in HK or MC) CNT Trade related CNY (max 3 months!) FX rate linked to CNY (CNT-CNY fungible) RMB agent bank needed (onshore correspondent bank or BOC in HK or MC) CNY Onshore participants only FX rate fixed by PBoC CNY Onshore participants only FX rate fixed by PBoC FLOW BACK REGULATED TRADE SETTLEMENT SCHEME CNY Forward market CNY Forward market Some arbitrage Limited retail flows between HK and Mainland

12. 11 Why would you use the RMB trade settlement scheme Access to a larger pool of trading partners at potentially better margins Trade settlement in RMB What is in it ? For you as a corporate For your Chinese trade partner Case by case assessment to see whether the advantages of trade settlement in RMB outweigh the costs Case by case assessment to see whether the advantages of trade settlement in RMB outweigh the costs Larger pool of potential trading partners in RMB Partner might agree to sell lower / buy higher in RMB Will have to manage the FX risk Lower transaction costs No FX risk Increased competitive position …

13. We offer this in KBC Hong KongKBC Singapore 12 What do we offer you to exploit the RMB opportunity? We cover most operational needs of a corporate in HK and SG You want to  Open an RMB current account (for CNH and CNT)  Buy and sell RMB forwards for  Hedging purposes  Speculation  Settle trade transactions in RMB  In open account  Under LC  Discounting of RMB usance LC  In RMB  In FX  Invest in RMB  Deposits  Bonds and Equities  Borrow in RMB  Short Term Advance in RMB  Trade finance products  Bond and equity issuance      

14. 1000 HKD HKD account 1000 HKD HKD account 1000 HKD 13 Opening a RMB account with KBC You see 1 RMB account, we manage 2 sub-accounts 1000 EUR EUR account 1000 EUR EUR account 1000 EUR 1000 CNY CNY account 1000 CNY CNY account What you will see as a KBC Hong Kong corporate client Just another account with one balance in CNY (CNY is the only ISO code for RMB) Two sub-accounts with each a balance and a potential use. CNH can be used freely outside China. CNT can be used for settling trade with China but CNT nature expires after 3 months What we will manage as your corporate bank 250 CNH 750 CNT Existing KBC Bank Hong Kong clients can open CNY accounts by sending us an instruction letter and after acceptance of the new account rules New KBC Bank Hong Kong clients can open CNY accounts based on the same documentation process as for any other currency. KBC Bank Hong Kong closely liaises with the European branches and with local secretarial firms in Hong Kong to ensure a fast process that puts as little documentation burden as possible on the client. Physical presence in HK is not required.

15. € $ £ FX account € $ £ FX account € $ £ CNY CNY account CNY CNY account CNY CNY account CNY CNY account 14 I want to pay my Chinese supplier in RMB Possible with the CNT in your account with KBC Hong Kong € $ £ FX account € $ £ FX account € $ £ YOU Provide us with Payment instructions Evidence of the trade related nature of the transaction Either you have CNT available (max 3 months old) Or you exchange FX into CNT KBC Bank HK CNH CNT YOUR SUPPLIER Needs to be an authorised Mainland Designated Enterprise allowed to settle exports in RMB Bank will return the money if your supplier does not meet the conditions Local bank TRADE TRANSACTION RMB clearing bank Bank of China in Hong Kong Similarly, KBC Bank HK can issue import RMB LC’s towards your Chinese supplier. The settlement of the LC will be done with your available CNT balance or after converting FX into CNT.

16. € $ £ FX account € $ £ FX account € $ £ CNY CNY account CNY CNY account CNY CNY account CNY CNY account 15 I receive RMB from my Chinese buyer Possible to receive it as CNT on your account with KBC Hong Kong € $ £ FX account € $ £ FX account € $ £ YOU Provide us upfront with evidence of the trade related nature, if not we must qualify incoming RMB as CNH Either you keep CNT (max 3 months) Or convert into FX Or transfer outside (making it CNH) KBC Bank HK CNH CNT YOUR BUYER Bank will return the money if your supplier does not meet the conditions Local bank TRADE TRANSACTION RMB clearing bank Bank of China in Hong Kong Similarly, if you are the beneficiary of an RMB LC from your Chinese buyer, the settlement will be done on you CNY account with KBC HK and will be qualified as CNT.

17. If you would like more information on our service offer, please do not hesitate to contact us. Stefaan Stappers General Manager KBC Hong Kong branch +852 2879 3388 Stefaan.stappers@kbc.be Jo Vander Stuyft European Desk Corporate Banking +852 2879 3372 Jo.vanderstuyft@kbc.be Andre Liu European Desk Corporate Banking +852 2879 3412 Andre.liu@kbc.be Questions and Answers