Singapore is joining the ranks of London and Hong Kong as a RMB clearing center. While the NeuGroup’s Asia Treasurers’ Peer Group (ATPG) was meeting this week at Caterpillar’s office in Singapore discussing the steady but slow pace of currency liberalization in China, little did they know that elsewhere in town senior leaders of China and Singapore were meeting to finalize agreements to strengthen their financial and economic ties. Indeed the headline in the local Singapore paper on the morning of October 23, the day after the meeting, was “China, Singapore Ink 7 Deals to Boost Ties.”
Paramount among the arrangements was the agreement that the two countries would begin directly trading their currencies. This arrangement will allow banks in Singapore to become clearing houses for the RMB. A closely related part of this deal was the Renminbi Qualified Foreign Institutional Investors (RQFII) program, which allows financial institutions in Singapore to issue RMB denominated securities to local investors. This effectively opens up the Chinese financial markets to outside investors through banks and securities firms with operations in Singapore. This will be welcome news to those who want to take advantage of China’s growing economy while also providing additional sources of capital to Chinese firms.
Still another aspect of the deal is the Renminbi Qualified Domestic Institutional Investor (RQDII) arrangement which opens the door for Chinese investors to buy into Singapore’s capital markets. HSBC Singapore chief executive Guy Harvey-Samuel was quoted saying that “capitalizing 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.”
Interestingly, these very topics were discussed at length at the ATPG meeting. Many companies have the very good problem of cash building up in China combined with the bad problem of restrictions on getting it out and the limited investment opportunities. Although it’s early, these developments will go a long way for companies with cash generating operations in China.
The ATPG meeting was sponsored by Standard Chartered Bank which arranged to have Leong Sing Chiong, Assistant Managing Director, Development & International with the Monetary Authority of Singapore (MAS) address the group. His responsibility is to facilitate the development of the Chinese and Singapore economic relationship. His address, the day before the official announcement of China-Singapore deal, focused on the mutual benefits of just such an arrangement, specifically that it would give China access to the sophistication and breadth of Singapore’s financial infrastructure, and that it would give Singapore access to the growth in China.