Singapore joins the RQFII party with 50b yuan quota

City state given 50b yuan quota during visit by Vice-Premier Zhang Gaoli

PUBLISHED : Wednesday, 23 October, 2013, 3:54am
UPDATED : Wednesday, 23 October, 2013, 6:11pm

Singapore has bolstered its credentials as an offshore yuan hub, joining Hong Kong and London as the only the third centre outside mainland China allowed to use the currency to trade in Chinese stocks and bonds.

The city state would obtain 50 billion yuan (HK$63.6 billion) worth of quota under the renminbi qualified foreign institutional investor (RQFII) scheme, the country's central bank said yesterday. The announcement came during a visit by Vice-Premier Zhang Gaoli.

In another development that nudges Singapore ahead of London, it will be given consideration to become one of the investment destinations for individual Chinese traders to make yuan investments in offshore markets under the new renminbi qualified domestic institutional investor (RQDII) scheme. Neither London nor Taiwan - another offshore centre seeking to grow its share of yuan business - has been granted such status.

Liu Ligang, the Greater China chief economist at ANZ, said the high-profile announcement of the RQDII scheme distinguished the Singapore agreement from other recent deals. "It will allow Singapore to capture the outbound flow of Chinese wealth," he said. "With the official clearing facility fully operating, Singapore is now fully equipped to be an offshore yuan business centre."

China and Singapore will introduce direct currency trading between the yuan and Singapore dollar, which saves trading costs for investors who now have to first make US dollar conversions.

Measures are also being studied to allow cross-border flows of yuan between Singapore and two mainland Chinese trade ventures, Suzhou Industrial Park and Tianjin Eco-City.

Competition between Hong Kong, London, Singapore and Taiwan in yuan business has been intensifying as each strives for more favourable policies from Beijing.

The announcement of Singapore's 50 billion yuan RQFII quota follows hot on the heels of London gaining an 80 billion yuan quota under the scheme. The quota was granted during a visit to China last week by senior British officials, including Chancellor of the Exchequer George Osborne.

The high-profile announcements of concessions to Hong Kong's rivals in the offshore yuan business are keeping the pressure on the city to maintain its lead status.

"No matter if it is inflow or outflow of [yuan], we would expect more competition," said Au King-lun, the chief executive of BOCHK Asset Management. "But I don't see it as a zero-sum game. Actually it is good for the overall market. If there is no competition, there would be no innovation."

Hong Kong accounts for 78.6 per cent of global payments using the yuan, followed by Britain with 5.2 per cent and Singapore with 3.4 per cent.