Singapore, China in direct currency trade

Convertibility of RMB and Singdollar boosting trade

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

Singapore Deputy Prime Minister Teo Chee Hean 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," Teo said.

"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 percent year-on-year to reach $115.2 billion. Singapore is China's largest foreign investor with $7.3 billion (S$9.3 billion) worth of investments last year, while China is Singapore's largest trading partner.

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 internationalize 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 meeting in Singapore. But no official start date was given then.

Teo 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 programs" 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 can take yuan loans from banks in Singapore. Loans of almost 2 billion yuan (S$417 million) have already been made since the initiatives started three months ago, according to MAS.

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

Singapore is also working with Beijing on a wide range of issues. They include cooperation on environmental issues, exchange programs for officials, intellectual property and a framework agreement for the National University of Singapore to expand its presence in the SIP.

The Straits Times

Asia News Network

(China Daily 11/10/2014 page15)