Wednesday 29 October 2014

Singapore, China launch direct trading of currencies on 28 October 2014

Move set to lower cost of doing business and boost trade links
By Esther Teo, China Correspondent In Suzhou, The Straits Times, 28 Oct 2014

SINGAPORE and China will start direct currency trading today, in a move set to lower the cost of doing business. It will also boost the already strong trade links between the two as Beijing pushes to internationalise the yuan.

Chinese Vice-Premier Zhang Gaoli announced the move yesterday at a high-level bilateral meeting in eastern Suzhou that he co-chaired with Singapore Deputy Prime Minister Teo Chee Hean.

Mr Teo indicated that direct currency trading could be a game-changer.

"This is a very major and significant development. I still remember my first visit to China 30 years ago. The currency was not even unified then and we had foreign exchange certificates. (The yuan) was not tradable at all," Mr Teo told reporters.

"But today, we have direct trading between the (yuan) and the Singdollar... It will reduce the cost of doing business and make it more convenient," he added.

Before this, companies that wanted to convert large amounts of the Singapore dollar to yuan, or vice versa, had to do so via an intermediate currency.

Last year, bilateral trade rose 11 per cent year on year to reach $115.2 billion. Singapore is China's largest foreign investor with US$7.3 billion (S$9.3 billion) worth of investments last year, while China is Singapore's largest trading partner.

Yesterday, the Monetary Authority of Singapore also said it has proposed to allow China-incorporated financial institutions to issue yuan-denominated debt instruments in Singapore directly. This will help to diversify long-term funding for Chinese financial institutions by allowing them to tap the global institutional investor base in Singapore, it added in a statement.

Amid reforms to internationalise its currency, China has launched direct trading with several currencies: the euro, the British pound, the Japanese yen and the New Zealand dollar.

Direct trading was one of the key outcomes at last year's Joint Council for Bilateral Cooperation (JCBC) meeting in Singapore. But no official start date was given then.

Mr Teo is on a three-day trip that kicked off on Sunday in conjunction with the 20th anniversary of the Suzhou Industrial Park (SIP) and the 11th JCBC.

He said a proposed third government-to-government project in China's western region was discussed, with the aim of reaching a conclusion in "concept, location and some programmes" by next year.

The SIP and Tianjin Eco-City, two government-to-government projects launched in 1994 and 2008 respectively, have played key roles in earning Singapore the title of the largest and busiest yuan centre outside of China.

Companies in both parks, for instance, can take yuan loans from banks in Singapore. Loans of almosttwo billion yuan (S$417 million) have already been made since the initiatives started three months ago, according to MAS.

Yesterday, leaders from both sides stressed the need to come up with innovative ways to keep the parks relevant to China's development stage.

"We hope to see some of these projects that we've been discussing reach a good point next year to help us mark the 25th anniversary of diplomatic ties between China and Singapore in a significant way," Mr Teo added.

Singapore is also working with Beijing on a wide range of issues, with five memorandums of understanding inked yesterday.

They include cooperation on environmental issues, exchange programmes for officials, intellectual property and a framework agreement for the National University of Singapore to expand its presence in the SIP.

Direct currency trading 'will have far-reaching effects'
By Mok Fei Fei, The Straits Times, 28 Oct 2014

THE multibillion-dollar trade between China and Singapore will become less costly from today, thanks to a landmark decision by China to allow direct trading of its currency and the Singdollar.

Local companies and banks say the move is far more than a technical adjustment to the complex foreign currency markets but one that will have far-reaching effects.

They note that it will cut business costs and currency conversion fees, and likely increase trade flows between the two countries while leading to new investment products being created.

Singapore's ambitions to become a leading hub for clearing business deals struck in yuan will also get a huge boost and companies with dealings in China will find life a lot easier.

Up to now they have had to obtain the yuan-Singdollar exchange rate by getting the rates for a third party currency, typically the US dollar. This caused exchange conversion costs to be incurred twice. Those costs will now be avoided as the rate will be set directly by the banks.

Financial experts note that it is a coup for Singapore to join the handful of countries like the United States, Japan and Australia whose currencies trade directly against the yuan.

In practical terms, the Chinese units of Singapore's three lenders have been made market makers for trading the currencies. This means they will quote a bid and ask price.

Ten other banks, including the Chinese units of foreign banks HSBC and Standard Chartered, join the Singapore banks as market makers.

Bilateral trade flows could rise as a result of the reduced foreign exchange conversion losses.

DBS China chief executive Neil Ge said: "Given that China is Singapore's largest trading partner and Singapore is China's largest foreign direct investor, more robust yuan trading and liquidity will further boost two-way trade and investments."

OCBC economist Tommy Xie said bilateral relationships could be boosted as the Singdollar will be more attractive as a payment currency for trade and investment between both countries.

Bilateral trade has been on the rise, hitting $115 billion last year. It totalled $89.1 billion for the first nine months this year, above the $83.1 billion over the same period last year, according to trade agency IE Singapore.

UOB China president and CEO Eric Lian noted: "Customers... can expect lower foreign exchange conversion costs as well as faster payments and receipts for their transactions."

Ms Elim Chew, president of fashion retailer 77th Street, told The Straits Times: "The direct trading will help to cut a lot of foreign exchange costs for us, especially when we do a lot of buying of raw materials."

Local firms look to benefit from direct RMB-Singapore dollar trading
By Wong Siew Ying, Channel NewsAsia, 30 Oct 2014

According to OCBC Bank, direct trading between the Chinese renminbi (RMB) and Singapore dollar got off to a positive start, with about S$700 million worth of trade done across the board on Tuesday (Oct 28) - the very first day such trading was allowed.

Some Singapore companies, like communication and design company Kingsmen, said they expect to derive benefits. The team at Kingsmen sees growth opportunities ahead, with China being one of its key markets.

Kingsmen first entered the Chinese market in the early 1990s and China now accounts for about 20 per cent of its total revenue. Its projects are usually in tier one and tier two cities in China - such as Beijing, Shanghai and Chengdu. Singapore contributes about 40 per cent of its revenue, with the rest coming from other markets including Japan, Korea, US and Europe.

The firm said the move to allow direct trading of the RMB and Singapore dollar will reduce uncertainty around foreign exchange conversion costs.

Benedict Soh, executive chairman of Kingsmen, said: "If it is a big transaction, then you cut away the uncertainty of how much higher you are going to pay.

"Sometimes the two or three banks that we use to transmit money, they would be using different corresponding banks in the US, and you never know when a small percentage point can make a difference, especially if you have a huge transaction."


Another company looking to expand is Jason Holdings - the timber flooring company said it expects direct trading of the two currencies to improve efficiency.

Jason Sim, executive chairman and CEO of Jason Holdings Limited, said: "Now when I buy plywood from Shandong, they also convert the currency. They use the RMB, which they then convert and sell to me in US dollars, then I have to convert it back to Singapore dollars.

"I think it is very troublesome, so maybe from tomorrow onwards, I can tell them to sell me in RMB and I will tell the banks to issue the letter of credit in RMB."

Mr Sim said that given the limited size of the Singapore market, his company is seeking growth in China. Six months ago, Jason Holdings made its first acquisition in Huzhou - a 100 million RMB factory that produces wood-plastic composite flooring. The company expects China to contribute to 50 per cent of its revenue by end-2015.

Jason Holdings added that the factory at Huzhou will also help to enlarge its markets by selling products to the US, Europe, Japan and Korea. Next year, Mr Sim hopes that the wood-plastic composite flooring products can also be distributed in Australia and New Zealand.

OCBC Bank said that the prospects of RMB-Singapore dollar direct trading are bright as more corporates tap into it.

Henry Chang, head of OCBC China Treasury at OCBC Bank, said: "The Singapore dollar is one of the major currencies in Asia and the Chinese RMB has become one of the most popular settlement currencies in terms of payments. So these two currencies together should have greater potential than other currencies.

"If the governments can allow the derivatives market to be developed in the future, I think it will help this currency pair to develop."

OCBC said the direct trading of RMB and Singapore dollar will provide some positive spinoffs for the financial sector. For example, it would make it easier to do business between Chinese and Singapore firms. They may start to expand their presence in each other's market and demand more banking services.

Singapore, China 'working towards more cooperation'
Talks on proposed third bilateral project also going well, says DPM Teo
By Esther Teo China Correspondent In Beijing, The Straits Times, 29 Oct 2014

COOPERATION between Singapore and China has seen "tremendous impetus" judging from the high-level bilateral meetings held this week, said Chinese State Councillor Yang Jiechi.

At a meeting with Singapore Deputy Prime Minister Teo Chee Hean at the Zhongnanhai compound, where China's top leaders work and live, Mr Yang said projects like the Suzhou Industrial Park (SIP), the Tianjin Eco-City and the proposed third government-to-government project had all been given a boost.

"With the guidance of leaders of both countries and the joint efforts of our peoples, continuous progress has been made in China-Singapore ties," he added.

In response, Mr Teo said both countries had "excellent discussions" in a broad range of areas.

"We reviewed progress in the Tianjin Eco-City and discussed further areas of cooperation," he said. "We also inaugurated important new areas of cooperation such as the direct trading of the renminbi and Singapore dollar which commences today."

Discussions on the proposed third bilateral project were also "going well", he added.

Mr Teo, who wrapped up his three-day official visit yesterday, co-chaired the annual Joint Council for Bilateral Cooperation (JCBC) with Vice-Premier Zhang Gaoli on Monday.

New milestones such as direct currency trading and a widening scope of cooperation in areas like social governance and financial services were discussed.

The JCBC is the highest-level mechanism for bilateral cooperation. This year's meeting was held in eastern Suzhou city in conjunction with the 20th anniversary of the SIP.

The SIP and Tianjin Eco-City, launched in 1994 and 2008 respectively, are the first two government-to-government projects. A third was proposed by Mr Zhang at last year's meeting in Singapore.

Mr Teo also met Central Military Commission vice-chairman Fan Changlong, who noted the close ties between China and Singapore, drawing on an anecdote that touched on his friendship with Mr Teo.

He said Mr Teo had made "great effort" to have a breakfast meeting with him when he made a brief stopover in Changi Airport last July en route to Australia.

"We had a very friendly exchange during that meeting, through which you expressed affection towards the Chinese people and friendship towards myself. I was deeply moved by that," Gen Fan said.

He also noted the "fruitful exchange" during the JCBC meeting that led to cooperation between both countries being improved and further expanded. The direct currency exchange, for instance, is very significant for China too, he said, even as Beijing pushes to internationalise the yuan.

Separately, Mr Teo also met former vice-premier Li Lanqing to thank him for his significant contributions to bilateral relations and the development of the SIP, according to a Singapore Foreign Ministry statement.

China launches Asian infrastructure bank
Singapore among 21 countries to sign MOU for setting up multilateral lender
By Rachel Chang In Beijing, The Straits Times, 25 Oct 2014

WITH little fanfare, China launched a new multilateral lender to finance infrastructure building in Asia yesterday with 20 other states, including Singapore.

Key countries like South Korea, Australia and Indonesia have stayed away from the new Asian Infrastructure Investment Bank (AIIB) despite concerted lobbying by Beijing to come aboard and in the face of pressure from the United States to boycott it.

Among the 21 countries that signed a Memorandum of Understanding to establish the new facility yesterday, India is the only other big economy besides China. Singapore and Qatar are the only other states whose economies are advanced enough to be lenders rather than borrowers.

At an event that was hardly reported in advance by Chinese media, President Xi Jinping met representatives of the participating states and said the bank would improve global financial governance.

He added that all countries with interest are welcome to join the bank and that it should work together with other multilateral organisations to promote prosperity in Asia and the world at large.

Deputy Prime Minister Tharman Shanmugaratnam, who represented Singapore at the signing, said the AIIB's creation was a "positive development to meet the immense infrastructure needs in Asia".

"Singapore looks forward to partnering other members to establish the AIIB as a resilient multilateral institution, complementing and drawing on best practices of existing players like the World Bank and the Asian Development Bank (ADB) so as to promote sustained growth in Asia," he said.

The bank, first proposed by Beijing last year, will have a fund of US$50 billion (S$64 billion) that will grow to US$100 billion, most of which will be provided by China. Singapore's Ministry of Finance said the Republic's contribution has not yet been decided.

The other countries are: Bangladesh, Brunei, Cambodia, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Sri Lanka, Thailand, Uzbekistan, and Vietnam.

Some key countries of the region were said to have kept away under pressure from Washington, which sees the AIIB as a Chinese effort to supplant multilateral lenders such as the US-led World Bank and the Japan-backed ADB.

The US reportedly told its allies there is no guarantee the Beijing-based body will uphold labour and environmental protection laws in the projects it finances, the way the ADB and World Bank do.

But China maintains the new body is needed to plug a gap in infrastructure financing, as ADB and World Bank programmes focus more on poverty reduction.

China's Finance Minister Lou Jiwei said yesterday that the 21 countries will now negotiate the AIIB's Articles of Agreement, which is expected to be completed next year, and the bank will be formally established by end-2015.

Shanghai Institute for International Studies research fellow Liu Zongyi said the US' lobbying against the AIIB is "ungenerous".

"The US is always saying that China is a free-rider, yet when China wants to play its part in multilateral institutions, the US won't make space," he added.

The Centre for a New American Security's analyst Ely Ratner said he hoped China would not see things "in competitive terms" but respond to the US' concerns by having the AIIB adopt international standards on the environment, labour and corruption.

Singapore's role in the yuan story
By Zhang Wei Wu, Published The Straits Times, 11 Nov 2014

LAST month, the Singapore dollar became the latest currency to be allowed to trade directly with the Chinese yuan, joining an exclusive club of only eight other currencies that can do so.

Direct currency trading means companies here can exchange yuan for Singdollars, or vice versa, without having to first go through a conversion with an intermediary currency such as the United States dollar.

The move is the latest in a series of milestones marking Singapore's growing role in the internationalisation of the yuan.

The Republic overtook London this year to become the largest yuan centre outside of Hong Kong - no minor feat, given the yuan's expanding influence as a global currency. It is now the second- largest currency for trade finance, the seventh-largest for overall payments, and the ninth most widely traded currency.

The increasing currency links between Singapore and China have boosted the Republic's status as a global financial centre. They have also given local firms an edge in what is now the world's largest economy, and made conditions here more favourable for Chinese businesses looking to expand overseas.

For example, yuan-clearing facilities in Singapore allow local firms doing business in China to transact directly in the Chinese unit more easily. This lets them avoid some exchange rate risk and China-regulated foreign exchange processes, and broadens their trading and investment opportunities in China.

Singapore firms can now also repatriate surplus yuan from their China operations back to Singapore. As a regional financial centre, Singapore is well-positioned to seize the opportunities presented by yuan internationalisation to grow its financial sector - and its economic ties with China.

The Republic has a competitive advantage in the offshore yuan space, given that it is a leading regional trade and commodities hub. It is also a nexus for multinationals, many of which want to expand in China.

So it is not surprising that yuan deposits in Singapore at end-June had reached 254 billion yuan (S$54 billion) - an 84 per cent increase from June last year.

The Industrial and Commercial Bank of China (ICBC) Singapore, the only authorised yuan clearing bank here, cleared 21 trillion yuan of transactions from January to August - more than eight times what it cleared from June to December last year.

Its yuan foreign exchange turnover reached a daily average of nearly US$70 billion (S$90 billion) in June, almost quadrupling year on year.

The total value of cross-border yuan settlement between Singapore and China stood at 515.2 billion yuan in the first half of this year, accounting for 10.7 per cent of the overall offshore market.

One way Singapore can further its role in the yuan internationalisation story is to work with other offshore yuan centres, rather than compete head-on with them. This will allow Singapore, along with the other markets, to leverage on one another's strengths.

Take ICBC's issuance in September of a record 4 billion yuan of "Lion City" bonds, or yuan-denominated bonds from Singapore. Two of the three tranches were dual-listed on the Singapore Exchange and Taiwan's GreTai Securities Market, in the first such tie-up between the two bourses.

Taiwan shows rapid growth in yuan deposits, while Singapore has strengths in treasury and trade finance. Given their complementary roles, there is scope for them and other markets to collaborate in research, development and promotion of yuan products.

Once the yuan becomes globally acceptable for investment, financing and payment purposes, it can go on to serve as a reserve, intervention and anchoring currency on an international scale.

That will lead to the final stage: full convertibility of the yuan. Singapore companies, Chinese enterprises and regional regulators all have a part to play in this exciting journey.

The writer is general manager, ICBC, Singapore branch.

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