S'pore banks embrace slew of China financial pacts

[SINGAPORE] Singapore will be a big winner from the raft of financial cooperation agreements inked with China yesterday, bankers said.

The asset management, foreign exchange and commodities sectors here will benefit from two investment initiatives - a 50 billion-yuan (S$10.1 billion) award for institutional investment into China's securities market; and another investment programme for Chinese investors to Singapore.

Another initiative, one of four announced yesterday, involves direct currency trading between the yuan and Singapore dollar. This will promote transparency for corporates who are hesitant about converting to yuan.

A SGD-CNY benchmark reference rate will be made available by the People's Bank of China on a daily basis, said Lum Yin Fong, DBS Bank's head of global product management, global transaction services.

"This will benefit Singapore corporate customers hedging their RMB, as it will provide them with an official benchmark to refer to," she said.

The most exciting development, bankers said, is facilitating cross-border yuan flows for Singapore companies operating in the Suzhou Industrial Park (SIP) and Tianjin Eco-City (TEC).

The idea is similar to what has happened for Hong Kong and Taiwanese companies in the Qianhai special economic zone and Kunshan cross-strait industrial cooperation experimental zone respectively, said OCBC Bank economist Tommy Xie.

Through these zones, Hong Kong and Taiwanese banks are lending offshore yuan or CNH loans to their compatriot companies.

"It's the most exciting measure as it'll mean cheaper funding," said Mr Xie.

By allowing cross-border flows between Singapore and SIP and TEC, "we believe it will be possible for companies operating in the two business zones to raise working capital in RMB directly from Singapore", said DBS' Ms Lum.

Wee Wei Min, OCBC Bank's head of global treasury advisory, said: "CNH interest rates can be one to two percentage points lower than onshore CNY."

"Among the four structural measures announced, the SIP and TEC are likely to have the most immediate impact as they could result in significant flow of RMB as long as it's related to specific projects," said Loh Boon Chye, Bank of America Merrill Lynch deputy president, Asia Pacific.

"In some ways, this can be viewed as a controlled liberalisation of this currency," he added.

The investment initiatives allow yuan deposits here to get access to the much bigger pool of China's securities markets via the 50 billion-yuan renminbi qualified foreign institutional investor (RQFII) programme.

The complaint about yuan deposits is the lack of investible instruments. Singapore had 142 billion in yuan deposits as of August.

The 50 billion yuan is significant given that London just got 80 billion yuan for its RFQII programme signed last week, said Lian Chia Liang, Western Asset Management head of investments, Asia.

London also signed a direct currency link with China. "It enhances our FX centre role," he said. Singapore is the world's third-largest forex centre behind London and New York.

Having an RQFII helps multinationals' corporate treasurers based in Singapore with their long-term financial planning as China "morphs from producer to consumer", said Mr Lian.

"From our experience and conversations with clients in Singapore, there is great interest from individuals and companies to invest in China and the RMB," said Ray Ferguson, CEO of Standard Chartered Singapore.

As for the renminbi qualified domestic institutional investor (RQDII) programme, it removes currency risks for Chinese institutional investors, and will make offshore investments more attractive, said Beng Hong Lee, Deutsche Bank head of markets, China.

Furthermore, financial institutions here will be able to attract Chinese capital, said Guy Harvey-Samuel, HSBC Singapore chief executive.

"Capitalising on its position as a leading offshore hub for international and private banking, asset managers in Singapore will be able to advise customers in China on their investment strategy for onshore products here in Singapore," he said.