UOB: No letup in investment flows from China into S-E Asia

Singapore - Despite slower growth in China, Chinese companies are continuing to invest in South-east Asia because they take a longer-term view, the head of RMB (renminbi) Solutions in United Overseas Bank (UOB) has said.

Mr Ben Chan, in an interview with The Business Times on Thursday, said: "The macro numbers suggest a slowdown; for us, no major impact."

Greater China accounted for 9.5 per cent of the bank's profit before tax of S$3.9 billion last year, making it the third largest contributor behind Singapore (61.1 per cent) and Malaysia (13.9 per cent).

And yuan deposits with UOB in Singapore have doubled over the last 12 months, driven by its corporate clients from China, who are expanding into South-east Asia.

A 2014 UOB survey had listed Singapore, Malaysia and Myanmar as the top three investment destinations for Chinese enterprises; UOB research has projected China's share of South-east Asia's total trade to hit 24 per cent by 2030, up from 14 per cent in 2013.

BT understands that UOB has the largest yuan deposits among the three local banks.

The overall level of yuan deposits in Singapore has, in fact, been falling, as is also the case in Hong Kong, the world's largest offshore RMB centre.

The Monetary Authority of Singapore (MAS) said total yuan deposits in Singapore stood at 189 billion (S$39 billion) at the end of last year, down from 230 billion the year before.

In Hong Kong, yuan deposits have probably fallen to about 800 billion from more than 1 trillion last year, said Mr Chan.

The fall in deposits comes from investors' realisation that the currency is no longer a one-way bet, he said.

The yuan has now fallen back to its 2012 level of 6.5 yuan to one US$1; in 2014, it was at a high of almost 6 yuan. Last August, China's central bank rocked markets with its devaluation moves; in December, the unit was pegged to a trade-weighted basket of currencies in which the US dollar makes up 26 per cent.

The fact that UOB's growth in yuan deposits is bucking an overall decline trend indicates the increasing business flows between China and Southeast Asia, said Mr Chan.

To better serve the segment, UOB last year set up a specialised RMB Solutions team, which is now about 20-strong.

The bank stepped in to help Sanchuan Holding Group, a hydropower developer, with its cross-border yuan-management needs; UOB's understanding of the yuan's internationalisation trends and regulations also supported Sanchuan through its regional expansion, said Mr Chan.

UOB was also proactive in supporting its Chinese clients' expansion into Indonesia by signing a memorandum of understanding with Indonesia's Investment Coordinating Board (BKPM). Under this, the bank's clients can apply for their Indonesia Principle Licence directly in Singapore without having to travel to Indonesia - a first in the market, he said.

"We see interest among our Chinese clients in harnessing Indonesia's tremendous market potential to diversify their customer base and to upgrade their manufacturing capabilities."

UOB helped nearly 100 Chinese companies invest and expand into South-east Asia last year. They are in industries ranging from real estate and trading to natural resources and consumer products and services.

A major hurdle clients face comes in the form of policy and regulatory changes related to the use of yuan in their business. In particular, many have "trapped" money in China and also want to know how to bring onshore money offshore.

Since late last year, the central bank has wanted to control the offshore liquidity pool and outflows have not been encouraged, he said. In the last two months, it has been difficult for companies to send yuan out, so UOB offers alternative solutions such as financing, said Mr Chan.

This article was first published on April 1, 2016.
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