The Philippines is expected to “win a larger share” of China’s overseas investments reaching an estimated $120 billion combined with the signing of an agreement that would clear the way for the direct conversion of the respective currencies of the two countries under a soon-to-be formed Philippine Renminbi Trading Community (PRTC) and peso-renminbi spot market, Finance Secretary Carlos Dominguez III said.

Dominguez said this milestone in the area of economic cooperation between the two countries also offers the Philippines, through the price discovery process, improved access to China’s bond market, where the government plans to establish a recurrent presence by issuing “Panda” bonds every 12 to 18 months.

The memorandum of agreement (MOA) signed Tuesday by 13 Filipino banks and the local branch of the Bank of China provides the provisional framework, scope and criteria for membership of the PRTC, which would be under the direct supervision of the Bangko Sentral ng Pilipinas (BSP). PRTC will serve as the precursor leading to the launching of the peso-renminbi foreign exchange spot market.

Aside from the Manila branch of the Bank of China, the other signatories to the MOA, which comprise the initial members of the PRTC are: Asia United Bank, Bank of Commerce, Bank of the Philippine Islands, BDO Unibank Inc., China Banking Corp., East West Banking Corp., Metropolitan Bank and Trust Company, Philippine Bank of Communications, Philippine Business Bank, Philippine National Bank, Rizal Commercial Banking Corp., Security Bank Corp., and Union Bank of the Philippines.

The PRTC will later open its doors to new members seeking to take part in the trading platform in the future, Dominguez said.

“We take this major step forward in the economic partnership between the Philippines and China. On both sides, there is confidence that this partnership will bring great benefits to both our peoples. This is a partnership nurtured by the warm friendship between our two countries,” Dominguez said during the MOA signing ceremony.

Dominguez,Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier and former BSP Governor Amando Tetangco Jr. were among those who witnessed the signing of the MOA held at the Makati Shangri-La, Manila in Makati City.

“We are now taking the first steps toward building the mechanism for the direct conversion of our currencies. The volume of business between our two economies justifies establishing this. The banks participating in this memorandum of agreement will set in motion the process of setting up a self-regulating organization that will oversee a transparent currency trading platform,” Dominguez said. “We anticipate a significant reduction in the cost of doing business across our two economies as a result of this.”

He said the creation of this currency conversion market or currency trading platform will reduce the costs of doing business for Chinese and Filipino businessmen and avoid the “friction” generated by pricing the exchange rates of the peso and renminbi in dollars, which slowed down trade and investments.

Dominguez said estimates show that businessmen from both the Philippines and China can save as much as 3 percent of transaction value once the direct currency trading platform is up and running. “That will add up to a substantial sum given the exponential growth of our business partnerships,” he said.

During the ceremony, Dominguez thanked the Bank of China for introducing and “doggedly pursuing” the concept for the currency trading platform over the past few years.

“The Bank of China was convinced early on that establishing a platform for direct conversion between the peso and the renminbi would greatly improve the competitiveness of the Philippine economy,” Dominguez said.

According to the Finance chief, the currency trading platform will further sharpen the Philippine’s competitiveness in attracting more direct investments from China, as what had happened with other countries like Singapore and Malaysia where similar arrangements have been established.

Singapore and Malaysia have emerged as the top two recipients of Chinese foreign direct investments (FDIs) among the Association of Southeast Asian Nations (ASEAN) member-economies after setting up their respective currency trading markets with China. Thailand has followed suit by allowing the direct conversion of the Thai baht into renminbi in February this year.

Chinese overseas investments last year amounted to $120 billion covering 174 countries and jurisdictions, Dominguez said. Even cornering just a little over one percent of this amount with the establishment of the currency trading platform would translate into $1.5 billion-worth of FDIs) from China alone, he added.

Moreover, estimates show that the seamless movement of currencies under the trading platform could save Chinese investors up to P750 million in costs, making the Philippines an attractive destination for Chinese FDIs.

Dominguez said China’s emergence as the Philippines’ largest merchandise trading partner, the increasing amount of Chinese FDIs flowing into the country, and the ever-growing number of Chinese tourist arrivals necessitate the establishment of a platform that would allow the direct conversion of peso to renminbi and vice versa.

“By the dictate of history, geography, and sheer practicality, we expect this economic partnership to grow and become even more intensive in the coming years,” Dominguez said.

According to Dominguez, the idea for a platform to directly convert the peso to renminbi and vice versa was initially discussed during President Duterte’s state visit to China in October 2016.

In that visit, President Duterte and Chinese President Xi Jinping expressed their willingness to actively promote regional financial cooperation between the two countries through the establishment of a bilateral currency swap arrangement.

The creation of the PRTC and the establishment of the currency trading platform that requires designating a renminbi clearing bank in the Philippines, would serve as the initial steps leading to a possible signing of a currency swap agreement between the central banks of the Philippines and China in the future.

Dominguez said BSP Governor Nestor Espenilla Jr. had given his approval in January for both the Philippines and China to proceed with the technical discussions on the currency swap arrangement.

Following the establishment of the peso-renminbi trading platform, Dominguez said the Philippines hopes to set up similar currency conversion arrangements with its other major trading partners, with Japan possibly the next country where a yen-peso direct conversion platform could be set up.

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