Source: Global Times Published: 2019-11-4
China will support Singapore to become one of the international financial centers for offshore yuan trading, said an official from China's central bank on Monday, according to media reports.
Analysts say the move symbolizes further internationalization of the yuan and shows that China is more open to foreign capital.
"Singapore is an important offshore yuan center and a key node in the Belt and Road Initiative, and China will support the development of the offshore yuan market in Singapore as one of the international financial centers for yuan investment and trading," said Pan Gongsheng, deputy governor of the People's Bank of China, during a finance summit on Monday, Shanghai Securities News reported on Monday.
Liu Xuezhi, a senior economist at Bank of Communications, said that building such offshore centers is important for the internationalization of the yuan and for financial openness.
"Singapore is the biggest financial center in Southeast Asia and one of the biggest offshore trading ports in the world. Cooperation with Singapore will benefit the financial openness of China," Liu told the Global Times on Monday.
Together with the central bank, the China Securities Regulatory Commission (CSRC) also said it will enhance cooperation with Singapore in the finance sector on Monday by opening up new areas, improving the ability of the futures market to serve the real economy, and supporting orderly expansion of the commodity futures market, Shanghai Securities News reported on Monday.
The CSRC also said that the two countries will create new tools and encourage financial institutions to set up personalized financial products.
"The formation of the offshore yuan market is closely related to trade volume between China and other countries. When the yuan business reaches a certain scale, the market will be formed," Zhao Xijun, a vice director of the School of Finance at Renmin University of China, told the Global Times on Monday.
"The Association of Southeast Asian Nations (ASEAN) has been the second-largest trade partner for China, and the yuan trading volume is very high. Singapore has the most mature financial market in ASEAN, so it plays a very important role in the diversification of the offshore renminbi market," said Zhao.
Foreign Direct Investment (FDI) flows from China to ASEAN amounted to $10.2 billion in 2018, accounting for 6.6 percent of ASEAN's total FDI, according to preliminary ASEAN data in September. And merchandise trade between China and ASEAN reached $479.4 billion last year, accounting for 17.1 percent of ASEAN's total merchandise trade.
"Financial cooperation with Singapore is unlikely to make it the biggest yuan offshore center and replace Hong Kong, currently the biggest offshore yuan trading market," said Liu.
Zhao also noted that the cooperation with Singapore is not targeting the Hong Kong market, but aims to develop a new offshore yuan center.
Zhao Xijun is associate dean of School of Finance and senior fellow of Chongyang Institute for Financial Studies, Renmin University of China. Dong Shaopeng is senior fellow of Chongyang Institute for Financial Studies at Renmin University of China.