By Kor Kian Beng, The Straits Times, 7 Jul 2012
SUZHOU (Jiangsu) - Singapore has inched ahead in the race to become the world's second offshore yuan trading hub, with China set to authorise one of its banks to be a yuan-clearing bank there.
It will be appointed from two Chinese banks to be granted Qualifying Full Bank (QFB) privileges in Singapore. In return, China will 'expeditiously process' applications from selected Singapore banks to set up branches.
Both countries agreed to enhance banking cooperation at yesterday's Joint Council for Bilateral Cooperation (JCBC) meeting co- chaired by visiting Deputy Prime Minister Teo Chee Hean and Chinese Vice-Premier Wang Qishan.
Mr Teo, speaking to reporters later, said the clearing bank was an important facility that would boost trade, banking and finance between China and the region.
It also reflected the special bilateral relationship that has been institutionalised to ensure smooth cooperation even amid leadership changes on both sides, he added.
'The clearing bank helps China to make the renminbi more internationalised and helps it to come into the region, to invest in this place,' said Mr Teo, as he wrapped up his three-day visit to three Chinese cities.
A Ministry of Trade and Industry spokesman said eligible Chinese banks interested in QFB privileges will apply to the Monetary Authority of Singapore and the relevant financial agencies will work out the implementation details.
Also agreed on at the JCBC meeting was a 'software transfer' institute in Suzhou to share the experiences both sides have gained in developing the 18-year-old Suzhou Industrial Park with other parts of China. Both sides will also look at a 'social management forum' to share lessons and find ways to tackle common challenges such as ageing, said Mr Teo.
During his visit, he met Vice- Premier Li Keqiang and toured Singapore's other flagship project, the Tianjin Eco-City.
He returned home last night.
More yuan-denominated products for investors here soon
By Alvin Foo, the Straits Times, 7 Jul 2012
INVESTORS here could soon be offered more products denominated in China's currency, the yuan, with the pool of yuan deposits expected to grow.
Bankers say a flurry of interest is expected in the fast-emerging currency after news that a Chinese bank in Singapore will be designated as a clearing bank for it.
Yesterday, the Ministry of Trade and Industry said Singapore will grant full banking licences to two Chinese banks currently operating here. One of the pair will act as a clearing bank for yuan transactions. The ministry has not named the two banks yet.
Having a clearing bank in Singapore is a significant development for the yuan market here, analysts say, and will likely spark a bigger offering of products in yuan for local investors. Bank of Singapore currency strategist Sim Moh Siong said this would allow for an increase in yuan trade settlements through Singapore.
He added: 'This in turn would increase the pool of yuan deposits that could lead to the creation of more yuan investment products.'
Standard Chartered's head of economic research (Asia) Tai Hui said: 'If we look at the progress made in Hong Kong... it sets the scene for the potential we could achieve for Singapore.'
Two years ago, Beijing began allowing foreigners to pay for imports and exports out of Hong Kong in yuan. Subsequently, they were allowed to trade in yuan-denominated bonds. Last month, China announced that foreign investors can now invest in yuan- denominated exchange-traded funds in Hong Kong.
Mr Tai noted that the yuan is now the third-largest currency after the US dollar and euro for letters of credit issued, adding: 'This ranking shows the popularity of the yuan with investors.'
Demand for the yuan and yuan-denominated products has been healthy since they went on offer in Singapore last year. For instance, OCBC launched its offshore renminbi deposit products in March 2011, and the portfolio grew at an average of 50 per cent month-on-month during the first few months.
Mr Joseph Arena, HSBC Singapore's head of global trade and receivables finance, said: 'We see tremendous potential for yuan products in Singapore, and expect demand for these products to continue growing.'
Yesterday, the Singapore Exchange said it is 'ready to list, quote, trade, clear and settle' yuan-based assets. 'SGX is committed to being the exchange of choice for issuers with yuan fund-raising needs and for investors who are keen to participate in the China growth story,' said its chief executive Magnus Bocker.
Long-awaited goal finally in sight
Singapore poised to be major trading hub for China's currency
By Grace Ng, The Straits Times, 7 Jul 2012
BEIJING - Singapore has finally moved closer to the long-awaited goal of hosting an offshore yuan- clearing bank, which will then open the door for it to be a major trading hub for the currency of the world's No. 2 economy.
Some 15 months after plans to authorise a Chinese player in the island city as a conduit for offshore yuan were first revealed, Singapore looks set to get Beijing's blessing for a yuan-clearing status coveted by other cities.
Some countries such as Malaysia already tap the Bank of China in Hong Kong, designated the world's first renminbi (RMB) clearing bank in 2004.
But what major financial centres really want is a direct clearing line to the People's Bank of China, allowing them a separate quota of offshore yuan from Hong Kong's 8 billion yuan (S$1.6 billion) daily limit.
Recently, cities like London and Tokyo looked to be making progress in their quest for their own standalone clearing lines.
In contrast - until yesterday's Ministry of Trade and Industry (MTI) announcement, that is - 'Singapore had felt left behind,' said RBS analyst Chia Woon Khien. 'But now it appears to have received a big endorsement from China.'
MTI announced that a Chinese bank will eventually be designated as a clearing bank in Singapore on the sidelines of top bilateral meetings in China.
A clearing bank supplies yuan, which cannot be freely taken out of or into China, offshore to investors in a foreign market. It handles the clearing of yuan-related transactions and business there.
What is striking about this clearing bank agreement is that it was made under the China-Singapore free trade agreement.
'This helps to institutionalise high-level support from the Chinese government for Singapore's role as an offshore yuan centre,' said a high-level banking source in Beijing. 'But it may also indicate that the process will be longer, and more complex.'
China may be more willing now to grant a full direct line to Singapore as it recognises the need to diversify the sources of offshore yuan trading.
'Given that we are entering the next stage of yuan internationalisation, there is a need for more than one clearing bank,' said OCBC analyst Tommy Xie.
With Singapore positioning itself as a gateway for South-east Asia, countries in the region that trade with China may use it as an alternative clearing hub to Hong Kong, said analysts.
And as the world's fourth-largest forex hub, Singapore has the infrastructure to support yuan-denominated trade and products.
Yesterday, the Singapore Exchange (SGX) took another step to reinforce the country's readiness to become an offshore yuan hub.
It announced that it is ready to list and trade securities denominated in yuan, a move that 'will extend Singapore's position as an offshore RMB centre', said SGX chief Magnus Bocker.
But it will be some time before Singapore can call itself a true hub like Hong Kong, which took several years before it reached the point where it has over 5.5 billion yuan of retail deposits, as at the end of April, and average monthly issuances of over 11 billion yuan of bonds.
Singapore will first have to grant licences to two eligible Chinese players to become full-service banks. Then one of the two will be authorised as a clearing bank. This could take many more months, say analysts.
Still, Chinese banks like the Industrial and Commercial Bank of China (ICBC) are already gearing up.
'We are willing and ready to be a Qualifying Full Bank and a clearing hub for the renminbi,' said Mr Xu Li, general manager of ICBC's Singapore branch.
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