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China opens pan-Asian FX trading center in radical response to Vietnam’s outlawing of retail FX trading, representing the first FX trading center on the mainland.
Following the draconian stance which Vietnam’s strictly socialist government took recently which resulted in the banishing of all FX trading from its shores, an unusual occurrance has taken place in that China has opened a currency trading center on its border with Vietnam in order to put an end to illegal retail FX tading.
China is well known for its hostility toward entities which seek to conduct business from its mainland with the free world, however the Association of Southeast Asian Nations (ASEAN) Currency Business Center will allow direct convertibility of the Chinese yuan and Vietnamese Dong.
“The center, the first of its kind in China, will boost convenience for business people in the border areas” Zhang Xiaogao, General Manager of the International Business Department of the Agricultural Bank of China’s (ABC) Guangxi branch told ZeeBiz yesterday.
Exchanges between the two currencies had to be conducted via the US dollar in local banks, contributing to traders that provide illegal services of direct RMB-Dong exchanges in the cross-border region, state-run Xinhua news agency reported.
Pan Yong, a professor with Business School of Guangxi University, said that owing to lack of supervision, border merchants and tourists were likely to be cheated by private currency traders with counterfeit money.
“These ‘bank stalls’ challenge the country’s foreign exchange management,” he said.
Whilst China’s communist government does not allow the free exchange of its currency between itself and non-communist nations, and the entry barriers remain high for those seeking to conduct business in mainland China, resulting in the use of representative offices to convey client funds overseas via electronic payment methods, Vietnam’s ideology is aligned with that of China, and was mainland China’s largest trade partner in 2013 with total turnover reaching $50.21 billion, up 22 percent year-on-year, according to statistics from the Vietnam Customs.
The recent banning of trading floors in Vietnam could therefore provide a basis for Chinese FX firms to establish themselves, and accrue clients from Vietnam.
Whether the establishment of the new ASEAN Currency Business Center will extend its services to mainland China is yet unknown, however in order to do so, it would be faced with the challenge of diverting China’s astute retail trader base away from coveted Western firms for which Chinese traders have a preference, regardless of the government-imposed difficulties presented to them.