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Speech by Senior Minister of State for Finance and Transport, Mrs Josephine Teo, at the Bank of China and the Singapore Exchange RMB Internationalisation Forum

19 Sep 2014
Date: 19 September 2014
Venue: Grand Hyatt Hotel Singapore
Speaker: Mrs Josephine Teo
His Excellency Mr Duan Jielong, Ambassador of the People’s Republic of China to Singapore
Mr Tian Guoli, Chairman, Bank of China (BOC)
Mr Magnus Bocker, Chief Executive Officer, Singapore Exchange (SGX)
Distinguished guests, ladies and gentlemen, 
Good morning.

1. Thank you for inviting me to the BOC-SGX RMB Internationalisation Forum.  My congratulations to the Bank of China on your appointment as the pioneer market-maker for the RMB currency futures which will be launched in the 4th Quarter of this year.  Today also marks the official launch of BOC Singapore (BOCS) as the first Chinese settlement bank on SGX. One could say this is double happiness – 双喜临门.

2. I would like to take this opportunity to commend the SGX on the impending launch of the RMB currency futures, which will be the latest addition to the suite of Asian currency futures that SGX began introducing since November last year.  Such developments will help to broaden the RMB product range and deepen the offshore RMB market here in Singapore.

Singapore’s RMB Market Shaping up Well  

3. Since the launch of RMB clearing arrangements in May 2013, our RMB market has grown strongly.  If we compare the total RMB deposits placed in Singapore at the end of June to just a year ago, the growth has been a very strong 84% and now exceed a quarter trillion yuan. To be exact, it was 254 billion yuan, which Chairman Guo Li shared with us earlier.  RMB-denominated loans including trade finance have grown in tandem at 88% and have surpassed half a trillion yuan.  In terms of RMB foreign exchange (FX), our average daily traded volume almost quadrupled year-on-year to reach close to 70 billion USD.  

4. In April this year, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) reported that Singapore had become the largest offshore RMB clearing centre outside Greater China, in terms of yuan world payments value.  This corroborates with the strong growth that we are seeing in our RMB market, and validates Singapore’s role as an international financial centre and regional trading hub.

5. Underpinning this growth is the fact that the use of the RMB has gained traction not only amongst multinationals in general, but including Chinese multinationals and other corporates in the region. This has spurred Singapore-based financial institutions (FIs), including BOC, to step up their efforts to promote RMB products and services.  The momentum will likely be sustained as China continues to liberalise the use of the RMB. 

6. A key initiative of the Chinese government was to allow corporates in the Shanghai Free Trade Zone to sweep their excess RMB funds out of China for more efficient intra-group cash management. China’s move to widen the onshore RMB FX trading band has also triggered greater corporate and investor interest to hedge their FX exposure, as can be seen in the increase in RMB FX average daily traded volume over the past year.

7. These developments play to Singapore’s strength as a regional treasury centre.  Over the years, we have become the largest FX centre in Asia. Taking advantage of the extensive treasury and cash management services offered by banks here, MNCs and Asian corporates have chosen to base their regional treasury operations in Singapore to manage their regional multi-currency cash pool including the yuan, and extend inter-company financing to their onshore related entities.  Treasury operations have been one of the growth drivers of RMB deposits and demand for RMB financing and risk management products in Singapore.  

Priority now to expand product and service range

8. So you might ask, are we optimistic that the RMB market in Singapore will continue to grow?  The answer is ‘yes’ and there are two maindrivers. 

9. First, the emergence of more RMB clearing centres globally will lead to wider RMB usage as each centre promotes the use of RMB to its network of FIs, corporates and individuals.  Quite clearly, this will lead to an expansion in the range of products and pool of users. As a result, the volume of transactions and activities will grow and offshore RMB liquidity will deepen.

10. Second, the Chinese authorities have demonstrated clear commitment to expand cross-border usage of the RMB, and will continue to open up more pathways for two-way flows of the currency to support real economic activities.

11. More specific to Singapore, we see future growth on several fronts.

12 For one, the cross-border RMB channels between Singapore and the Suzhou Industrial Park (SIP) and the Sino-Singapore Tianjin Eco-City (TEC) will drive more RMB activities amongst corporates, individuals, and FIs.  Corporates in the SIP/TEC are now able to borrow RMB from banks in Singapore and issue RMB bonds here;

• Equity investment funds in SIP/TEC can conduct direct investment in Singapore and the ASEAN region; and

• Individuals in SIP/TEC can conduct RMB remittances for the settlement of current account and direct investment transactions. These are the expressions of the liberalisation of the cross-border RMB channels between Singapore and the SIP/TEC. 

13 It’s still early days but we are already seeing good take-up of cross-border financing amongst SIP/TEC corporates; a number of these corporates are also working with Singapore FIs to tap the offshore RMB bond market here.

14 Besides these cross-border RMB channels, we expect to see a broader base of participants in our RMB market.  There is really no lack of opportunity to broaden participation, given the growth in trade and investment between China and the region, which naturally fuels the demand for more RMB products. 

• Besides MNCs which are already plugged in, there is increasing interest from regional corporates as well as Singapore companies, including our SMEs, to use RMB.
• For example, United Envirotech Limited, which is an environmental solution provider focusing on water and wastewater treatment, and LOOK Architects , an architecture firm, have leveraged the expertise in RMB products and services offered by BOCS to support their expansion plans in China. 

15 So much on the demand side, how about the supply side?  Here, we see that the RMB ecosystem in Singapore has been responsive and is rapidly evolving. 

• The Monetary Authority of Singapore (MAS) is working closely with the industry to go beyond our existing strengths in RMB trade financing to build up capabilities and range of products in the capital markets space.  Already, we have seen nine offshore RMB bonds issued in SingaporeLion City bonds.  This is a modest but good start, and we look forward to more RMB bond issuances by corporates in Singapore as well as by Mainland Chinese entities. 

• The launch of SGX’s RMB futures is therefore a timely and welcome move.  It will complement the increasing number of RMB investment products available in Singapore, such as the Lion City bonds and China A50 equity futures, and broaden the suite of pan-Asian exchange-traded products available here. 

• We have also seen keen interest from the industry since licence applications for the RMB Qualified Foreign Institutional Investor (RQFII) quota commenced in January this year. The China Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchange (SAFE) have so far approved four licence and quota applications from Singapore-based FIs  and we are seeing more applications in the pipeline. 

A vibrant and comprehensive RMB ecosystem within Singapore’s reach
16 In conclusion, we are very much enthused by the robust growth of our RMB market, and we are optimistic that the market will continue to develop strongly.  MAS will continue to work with the industry and end-users to develop the RMB ecosystem in Singapore, one that is vibrant, comprehensive, broad yet deep.

17  Later this year, the Joint Council for Bilateral Cooperation (JCBC) between China and Singapore will meet again.  Financial cooperation continues to be a key item on the agenda, demonstrating the commitment by both countries to deepen collaboration which can serve to catalyse greater economic and financial linkages between our two economies.

18 Today’s partnership between SGX and BOC is a very good example of two leading institutions in Singapore joining hands to push new frontiers in RMB. As Asia’s most international exchange, SGX will provide BOC with a platform to connect to investors in the region, while BOC as China’s most international bank, will enable SGX’s customers to benefit from greater access to China. 

19  I wish both institutions every success in this win-win partnership. 

20. Congratulations and thank you.