More offshore yuan hubs, no fears for S'pore

Singapore's ambition to become a leading offshore yuan trading hub is unlikely to be dented by the entry of new players in the market, according to analysts.

The goal - fast becoming reality - got another boost on Tuesday when Singapore and China signed a raft of financial agreements, including a move to allow direct trading of their currencies.

The deal also means it will be easier for Singapore investors to buy stocks in mainland China.

Experts said the Republic should not be wary of rivals such as Britain, which last week signed a deal with Beijing that designated London an offshore centre for handling yuan investments.

"Singapore can still get a big share of the offshore yuan pie. The pie is not fixed, and with greater awareness of the yuan, the pie is growing rapidly," said OCBC Bank economist Tommy Xie.

Beijing has long carefully controlled internationalisation of its currency but has moved more swiftly in the past couple of years.

Late last month, as part of the launch of the free trade zone in Shanghai, China allowed the convertibility and cross-border use of the yuan under a pilot programme within the zone.

Developments such as these mean higher demand globally, with more investors outside of China holding the yuan, said Royal Bank of Scotland chief China economist Louis Kuijs.

He noted growing interest among policymakers in grabbing a share of the yuan business. "There's quite a bit of competition to become the preferred venue for these types of financial transactions."

Hong Kong has long been entrenched as the key offshore yuan trading hub, with more than 80 per cent of the yuan-denominated Chinese trade passing through its financial systems. Globally, Hong Kong is also the biggest holder of the offshore yuan savings pool.

But DBS Bank senior currency economist Philip Wee said China wants other financial centres such as Singapore and London to play a part too.

He said that China is diversifying its economy, with an emphasis on its services sector, especially financial services, which will help broaden the use of the yuan.

"London, Hong Kong and Singapore are the top financial centres in the world, so setting up offshore yuan centres there will help to bring the flow to different places," said Mr Wee.

Yuan deposits in Singapore increased by about 40 per cent from December to about 140 billion yuan (S$28.4 billion) at the end of July, an indication of the growing demand.

OCBC's Mr Xie believes Singapore's role will not be diminished, as it acts as the yuan hub for South-east Asia.

With trade ties between China and South-east Asian nations growing, he said, yuan-denominated transactions for this region will rise, benefiting Singapore.

DBS' Mr Wee added that emerging markets in South-east Asia will continue to be a source of growth, so China will not let up on efforts to boost yuan trading here.

The total value of trade between China and ASEAN was about US$400 billion (S$496 billion) last year, on the back of an average annual growth rate of 22 per cent over the decade to 2012.

feimok@sph.com.sg

Get a copy of The Straits Times or go to straitstimes.com for more stories.