Citi: China trade financing a challenge and an opportunity

Singapore

WITH Singapore/Asean growth challenging, capturing China/intra-Asian trade and investment growth is too big an opportunity for banks to ignore, said Citi Research.

Trade finance in Hong Kong and Singapore has surged at over 40 per cent per annum in recent years, well above single-digit growth in physical trade and sparking investor fears that banks ultimately are funding speculative, carry-trades to China's shadow banking system, Citi said in a May 22 report.

"China has been a significant driver of the trade finance growth in Hong Kong and Singapore and a portion of this, we believe, is related to commodities trade financing where the purpose of the trade is purely financial, that is to facilitate the borrowing of cheap credit offshore and to repatriate the proceeds onshore for higher yielding investments in China," it said. "We estimate that trade finance exposures reached 14.6 per cent and 13.5 per cent of loans in Hong Kong and Singapore in 2013, and total China related exposures reached 35 per cent of loans in Hong Kong and 14.5 per cent of loans for the three maj…