China has signed yet another bi-lateral agreement with a foreign nation with the aim of further expanding its sphere of influence in Asia, as well as raising the level of influence its own currency (the yuan) has on a global stage.
According to a statement by the Monetary Authority of Singapore (MAS), Singapore and China today signed an agreement designed to “strengthen financial cooperation through new path-finding initiatives in the offshore Renminbi (RMB) market, capital markets and insurance.” The agreement was reached at the 11th Joint Council for Bilateral Cooperation (JCBC) meeting held in Suzhou, China, and co-chaired by Singapore Deputy Prime Minister, Mr. Teo Chee Hean and China’s Vice Premier, Mr Zhang Gaoli.
Singapore is keen to become the world’s most prominent offshore Chinese yuan market but currently remains 2nd behind Hong Kong after surpassing London earlier this year.
Last year, the Singapore Exchange (SGX) and China Financial Futures Exchange (CFFEX) signed a Memorandum of Understanding (MOU) to cooperate in the development of the derivatives markets in China and Singapore.
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One of the major ‘initiatives’ announced as part of the closer ties between the two Asian financial powerhouses is the introduction of “direct currency trading between the Chinese yuan and Singapore dollar” scheduled for October 28th 2014. It is hoped that the direct link will “lower foreign exchange transaction costs and encourage greater use of the two currencies in cross-border trade and investments,” according to the MAS.
Another major initiative is to allow Chinese financial firms to issue RMB-denominated debt directly in Singapore. Such a move is likely to “diversify long-term funding for Chinese financial institutions by allowing them to tap into the international institutional investor base in Singapore,” says the MAS. In a broader sense, cross-border links of this kind represent a bridge between the traditionally prominent financial centres in Europe and the US with that of Asia – specifically China.
Furthermore, the two countries also agreed to strengthen ties in both the capitals’ markets and insurance niches of financial services. The Monetary Authority of Singapore (MAS) and the China Securities Regulatory Commission (CSRC) agreed to review measures to enhance collaboration between the derivatives markets of Singapore and China. In parallel, MAS and the China Insurance Regulatory Commission (CIRC) plan to explore collaborative initiatives in the area of catastrophe risk insurance.
In her 28th year at the MAS, Deputy Managing Director, Ms. Jacqueline Loh, said: “Financial cooperation has become a pillar for Sino-Singapore bilateral relations. The successful implementation of the financial cooperation initiatives and the new areas of cooperation agreed at the 11th JCBC meeting bear testament to the excellent relations between MAS and its counterparts in China. As China proceeds with its structural transformation and financial reform, financial cooperation between the two countries will grow in importance and mutual benefit.”
When evaluating previous initiatives between the two countries, the MAS identifies two specific reasons for cheer. About 30 companies from the Suzhou Industrial Park and Tianjin Eco-city have borrowed nearly RMB 2 billion from banks in Singapore through the cross-border RMB lending initiative; and 7 Singapore-based institutional investors have received approval from the CSRC to participate in the RMB Qualified Foreign Institutional Investor scheme.