FOCUS: Singapore - Europe-Asia renminbi triumvirate
by Adam Cotter
The renminbi has come a long way since the Beijing authorities moved to open the currency for trade settlement in 2009. The ensuing seven years have seen China gradually take on the challenge of liberalising the capital account in a period of slowing growth, unconventional monetary policies around the world and a fall in the renminbi against the dollar.
The inclusion of the renminbi in the International Monetary Fund’s special drawing right is yet to generate significant trust in the currency or support the internationalisation that Beijing would wish to see. The authorities are struggling to stem the currency’s decline, though Beijing is unlikely to take sudden action. International payments use of the renminbi fell 29.5% last year, according to the Society for Worldwide Interbank Financial Telecommunication. Stability remains the mantra and, though the current volatility may be unsettling, any suspensions on capital outflows are likely to be short lived. Policy-makers acknowledge that rhetoric alone will not satisfy investors. Unless fundamental reforms are carried out to improve confidence in China’s financial sector, outflows could spike later this year.
Singapore is not immune to difficulties from China. However its fundamentals remain strong and it is well placed to benefit from long-term Chinese opportunities. Singapore is at the forefront of initiatives to expand channels for cross-border renminbi flows and develop the infrastructure to back greater international use of the currency. The cross-border initiatives with Chongqing, Suzhou and Tianjin, though in their infancy, will help to boost renminbi activities in Singapore.
The US has been granted the second largest renminbi-qualified foreign institutional investor scheme quota after Hong Kong, with Rmb250bn. However, with no timeframe given, and Sino-US relations likely to be strained under Donald Trump’s presidency, this scheme is unlikely to be implemented for some time. Meanwhile, Singapore and London have well established reputations in Beijing, while New York remains conspicuous by its absence among the top renminbi trading centres.
Chinese institutions have been rapidly increasing their international operations and investments, and Singapore is a gateway for Chinese firms. There are around 6,500 Chinese companies in Singapore. Many of them have set up regional treasury centres to take advantage of Singapore’s banking and capital markets to finance their regional expansion. The seven Chinese banks in Singapore are expanding their presence to provide funding support for the activities of Chinese and regional corporates, offering diversified renminbi products, promoting the use of the renminbi in trade and investment, treasury operations, and commodity and derivatives trading.
London’s future as the largest offshore renminbi centre will remain uncertain for the duration of the UK-EU exit negotiations. In the meantime, London needs to learn lessons from Singapore’s efforts in building its own effective regulatory environment and globally competitive tax regime.
Singapore and London should consider building a Europe-Asia triumvirate, with Hong Kong, as the premier global renminbi centres. Switzerland, where adoption of the renminbi has also been strong, will also want to be involved in this market. The Swiss lobby has been making efforts, following the Brexit vote, to connect London, Switzerland, Singapore and Hong Kong into a so-called ‘F4 alliance’ to coordinate positions on global financial regulation.
Technology will continue to play a bigger role in policy-making circles, and Singapore and London are well placed to build on initiatives such as the fintech bridge to galvanise their role in redesigning the global financial infrastructure. ▪
Adam Cotter is Head of Asia and Chief Representative, Singapore, at OMFIF. Back