Trade will evolve, not shrink with US-China trade war: Citi

Singapore

THE US-China trade war may lead to more diverse trade flows, said a senior Citi banker.

Citi's view is that trade will evolve, and not diminish, said Naveed Sultan, the bank's global head of treasury and trade solutions. "We envision that trade flows will adapt and evolve to be more geographically diverse. Flows will shift towards markets where opportunities and costs are attractive, and local technologies seem worthy of greater investment," he said.

London-based Mr Sultan should know, as the US financial services giant is the world's largest transaction banking provider, handling US$4 trillion in payments daily. Providing transaction banking services - or what Citi calls treasury and trade solutions (TTS) - is mainly about facilitating payment and managing cash for companies.

In the first half of 2018, Citi's global TTS revenue of US$4.6 billion made up 12 per cent of the bank's group revenue.

Fears of a protracted trade war between the world's two largest economies have made global supply chain companies think about shifting their manufacturing facilities. The escalating trade conflict is also giving rise to anxiety about winners and losers among Asia's export-dependent countries.

Despite rising trade tensions, consensus estimates of global trade growth anticipate an increase of about 4 per cent this year, said Mr Sultan who was in Singapore last week.

"Our observations are that investment flows from outside of and within Asia, including Asean, will grow further, moving in tandem with the expansion of new intra-Asia trade corridors," said Mr Sultan in an interview via e-mail.

Already, two-thirds of China's outward foreign direct investment now flows to Asian countries, he noted.

"We continue to see positive growth in our trade business and this has and will continue to drive growth in our TTS business in this region. We are also closely engaging clients on conversations around shifts in supply chains, direction of trade flows, and the impact of digitisation on trade," said Mr Sultan.

At present, companies are focused on managing costs and working capital to mitigate cost pressures arising from escalating tariffs, he said.

With a global network that spans over 100 countries and in-depth local expertise in each market, Citi can advise clients as they think through the changes in the business landscape and how to optimise their operations and supply chains, he said.

TTS business continues to grow at a healthy clip in Asean and Singapore, and e-commerce in particular offers huge opportunities given the region's demographics, he said.

E-commerce has been the fastest growing client sector for Citi's TTS business in Asia in the last few years, with double digit growth, and 2018 is expected to be no different.

"Singapore and the Asean region are key for Citi's TTS business globally and offer significant growth opportunities," he said.

Asean, which has seen rapid urbanisation over the years, is home to 640 million people. By 2030, 65 per cent of the region's population will be in the middle class.

The region as a single entity was the world's sixth biggest economy with a combined gross domestic product of US$2.6 trillion in 2016, with the potential to become the fourth largest economy by 2030.

Digital adoption, while already significant, has the potential to pick up exponentially, he said.

A 2017 report by Google and Temasek revealed that the region's Internet economy is estimated to hit US$200 billion in 2025, up from US$50 billion in 2017. The region has a 72 per cent penetration of smartphone users.

Businesses have recognised this opportunity and the region is now home to several globally-famed unicorns, Mr Sultan noted.

"We are investing significant amounts into continuing to develop solutions that help our e-commerce clients manage their payments and collections more effectively," he said.

In markets where payments infrastructure has been linked with personal identification details, the bank can now streamline the sales process for clients, he said.

Mr Sultan also highlighted Singapore's role in helping to raise capital for the region's development.

Singapore's position as a highly developed trading centre, with excellent infrastructure and a well-established legal and banking system, is central to Asean's development, he said.

As a key Asean founding member, Singapore has preferential business and investment policies with fellow member nations, harmonising regulatory standards and promoting a single integrated market in the community, he said.

Singapore has the largest concentration of regional and global treasury centres for Global Fortune 500 clients. Over 40 per cent of these companies have their Asia-Pacific headquarters in Singapore and many of them are Citi's clients, said Mr Sultan. With over 100 regional treasury centres, Singapore has three times the multinational footprint that other key regional hubs such as Hong Kong and Shanghai have, he said.

"Given its deep capital markets, we also see Singapore as an active capital raising centre for Asean and Indian e-commerce and digital companies. For Citi and for our clients, the city-state is also a test-bed for a number of new innovations and is used as launch pad to other markets."

About 40 per cent of Citi's 65,000 staff in Asia is located in Asean.Citi Singapore's headcount is some 9,000 people; its Singapore foreign-exchange floor is the biggest after New York. Citi also has 15 branches in Singapore. Citi Asia contributes one-third to the bank's group revenue, and is the biggest contributor to global revenue and net income outside North America.