In the international scramble for leadership among offshore yuan dealing centres, Hong Kong and Singapore have surprised competitors and market observers by putting aside fierce historical market rivalry and joining forces. Hong Kong Exchanges and Clearing (HKEx) and Singapore Exchange (SGX) have just signed a memorandum of understanding for co-operation in developing yuan products. The deal redefines the challenge to Hong Kong's role as the leading offshore yuan centre - not only from Singapore, but from London, Paris, Tokyo and Sydney - by widening and easing the access it offers to Chinese capital markets through Asia.
The tie-up between Hong Kong and Singapore to service a market of immense future significance is welcome. Use of the yuan may not grow as quickly as expected because China's currency of trade will remain the US dollar as long as the yuan is not freely convertible.
Nonetheless, as China's trade and investment expands in volume and diversity, in line with the decison by the third plenum of the Central Committee to liberalise the economy and encourage free-trade arrangements, it will involve increasing use of the yuan.
HKEx chief executive Charles Li Xiaojia said the agreement built on Hong Kong's position as the premier offshore yuan centre through closer links with Singapore and helping regional investors use a greater pool of investable offshore yuan.
New York, London and Sydney have all been fast-tracking expansion of their offshore yuan facilities. HKEx's efforts to ensure Hong Kong maintains its status deserve support. The deal with Singapore shows that competitive relations between the city and the island state do not have to be a zero-sum game. In this case there are attractive synergies - such as Hong Kong's mainland links and Singapore's role as financial gateway to Southeast Asia.
In the long term, the agreement opens the door for Asian markets to have a voice in global market developments and regulatory reforms.