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[SINGAPORE] With billions of dollars in transaction and servicing fees up for grabs, competition for offshore renminbi (RMB) business is getting fiercer and could see London as well as Singapore emerge as the two dominant offshore RMB hubs alongside Hong Kong by 2020.
According to Fred DiCocco, Asia-Pacific head of sales & relationship management for BNY Mellon's treasury services business, around 20 per cent of China's US$4 trillion in annual foreign trade is conducted in RMB today.
This is expected to surge to over 30 per cent as early as next year and see the RMB become one of the top three global trade currencies.
"It would not be naive to suggest that it could rise to as much as 50 per cent by 2017," Mr DiCocco said. He noted that while Hong Kong is still the undisputed No 1 offshore RMB payments centre with a 71 per cent market share, its leadership position is slowly eroding having dropped by around 10 per cent over the last three years with London and Singapore both establishing themselves as strong alternatives.
"While their market shares are minor when compared with Hong Kong today, languishing in single digits, I expect we will see both centres surge forward and break away from the rest of the pack over the next few years. By 2020, it is possible we will see London and Singapore join Hong Kong to form the top three RMB offshore centres by market share," Mr DiCocco said.
"With China-EU trade representing the second largest global economic cooperation pact, and with more than 40 per cent of all global foreign exchange (FX) trading taking place in London, it was no surprise two years ago to see London take the initiative to position itself as the main offshore trading centre for RMB."
Singapore is expected to play a similar role. "Singapore's rapid ascendancy has been fuelled by the fact that offshore RMB growth to date has been driven primarily by trade finance settlement. With Singapore as the main trade finance hub for Asia-Pacific, and the predominance of intra-Asia trade, it is not surprising to see Singapore proving an attractive centre for offshore RMB payments too."
Despite the rivalry between Singapore and London, the two financial powerhouses have agreed to cooperate on further development of offshore RMB through a new UK-Singapore Financial Dialogue, Mr DiCocco noted. "Announced in February 2014, this private sector forum can only be of mutual benefit to both countries," he added.
The race is certainly on, with traditional and non-traditional centres alike making overtures to attract China's financial clout. An example is Luxembourg, which has stated that it wants to become an overseas centre for Chinese investments.
As for Beijing, the focus is for more centres to promote and accelerate the internationalisation of its currency.
"You see this in some of the recent announcements from Beijing where plans are in place to designate clearing banks in Paris and Luxembourg to complement London, Frankfurt, Singapore and Sydney as official offshore RMB cities. Only time will tell who the winners will be, but I believe by 2020 we will see a three-horse race between London, Singapore and Hong Kong for supremacy, with Hong Kong probably continuing to lead the way," Mr DiCocco said.
Singapore's RMB journey started more than a year ago, when the People's Bank of China (PBC) announced that ICBC Singapore would be appointed as the RMB clearing bank for Singapore. ICBC Singapore launched its RMB clearing services in May last year.
As at end 2013, Singapore's total RMB deposits stood at 200 billion yuan (S$41.2 billion) and RMB-denominated loans, mainly trade financing, reached 300 billion yuan. Based on Swift data, Singapore accounted for about 60 per cent of RMB trade finance outside China and Hong Kong.
According to the Monetary Authority of Singapore, since the allocation of 50 billion yuan RMB Qualified Foreign Institutional Investor (RQFII) quota to Singapore in October last year, it has seen keen interest from banks and asset management companies to apply for the quota.