By Wang Jiping

Sino-Singapore Cooperation Boosts RMB Internationalization

By Wang Jiping

Singapore， as an important world financial center， is promoting its modern financial system.

In line with significant enhancements in financial cooperation between China and Singapore in recent years， the Monetary Authority of Singapore （MAS） announced on June 22 that it would include RMB financial investments as part of its Official Foreign Reserves （OFR）. According to a MAS statement， this move recognizes the steady and calibrated liberalization of China's financial markets， and the growing acceptance of RMB assets in the global portfolio of institutional investors.

So， what signals did Singapore send through this move？ And， how will Singapore's inclusion of RMB financial investments into its OFR influence the trade and economic ties between the two countries？

A Boon to Stabilizing Singapore's Financial Market

“In view of milestones in Sino-Singapore financial cooperation over the past years， we can conclude that this was not a sudden， spontaneous move， but represents an inevitable trend，” said Wang Qin， director of the Southeast Asia Research Center at Xiamen University.

In 2014， Singapore once again became the world's second-largest offshore RMB settlement center after London overtook Singapore to rank second globally as a clearing center for RMB in June 2012. The latest data released by the Industrial and Commercial Bank of China（ICBC） Singapore Branch show that from 2013， when it began operation，through the end of 2015， Singapore's RMB clearing volume increased consistently， eventually topping 100 trillion yuan （US$15 trillion）， a total of 113 local and foreign banks opened

28RMB settlement accounts with the Singapore Branch， and its RMB settlement service expanded to cover 42 countries and regions.

“Te above-mentioned facts provide evidence of both sides' strong intention to maintain financial cooperation as well as Singapore's great interest in RMB，” Wang added.

Ma Xiaoping， a macroeconomic analyst at the Hong Kong and Shanghai Banking Corporation（HSBC）， said that as one of the Four Asian Tigers， Singapore features a relatively faster growth rate and a more open market. “However， as Brexit becomes a reality， global financial markets are churning，” she said. “Tis will not only affect the economy of Britain as well as other European countries，but will also cause economic losses to Asian countries， especially economies with more open capital flows such as Singapore and Malaysia. Therefore，Singapore's inclusion of RMB financial investments into its OFR may also help to stabilize its financial markets and boost economic growth.”

The expanding global influence and internationalization of RMB also contribute to Singapore's inclusion of RMB financial investments into its OFR.

A Sign of Healthy Progress of RMB Internationalization

In addition， the expanding global influence and internationalization of RMB also contribute to Singapore's inclusion of RMB financial investments into its OFR.

MAS' June 22 statement revealed that over the past several years， China has adopted measures to ease restrictions on foreign institutional investors entering its foreign currency and securities markets. Many institutional investors， for example， have been granted access to China's interbank bond market， with quota restrictions canceled. According to Jacqueline Loh Wai Yin， deputy managing director of MAS，as the RMB gains growing recognition worldwide， including RMB financial investment as part of Singapore's OFR obviously occurred on time.

“In fact， this move marked a step forward in the process of RMB internationalization， implying the level of RMB internationalization continues to improve，” said Bai Ming，a fellow researcher at the Academy of International Trade and Economic Cooperation of China's Ministry of Commerce. Bai added that when currency is considered， the advancement of RMB internationalization is mainly fueled by three factors. The first is whether RMB can remain relatively stable in the face of a complicated international environment.

“Considering its performance in either the 1997 Asian financial crisis or the 2007 America's subprime mortgage crisis which triggered financial risks， RMB withstood the test， showing a certain degree of stability，” Bai said. “Secondly， China should establish and improve related systems， such as a steady currency credit system. Thirdly， RMB must have certain market and liquidity， so that it can be used by other countries，derive multiple financial products，and even become part of other countries' foreign currency reserves. Given these factors， Singapore's move shows major progress in RMB internationalization.”

According to Wang， Singapore can be seen as pivotal in the process of RMB internationalization. Over the years， China and Singapore have made unceasing efforts to promote financial cooperation， especially in terms of RMB internationalization. During Chinese Vice Premier Zhang Gaoli's visit to Singapore last October，for instance， both sides agreed to expand the pilot cross-border RMB initiatives between Singapore and the China-Singapore Suzhou Industrial Park and Sino-Singapore Tianjin Eco-City to the cities of Suzhou and Tianjin， which means that banks in Singapore will be able to lend RMB to corporations across Suzhou and Tianjin， and corporations in Suzhou and Tianjin will be able to issue RMB bonds in Singapore. In the meantime， the Tianjin Eco-City Investment and Development Company issued China's first offshore RMB-dominated bonds in Singapore， a move that allows overseas investors to better share the Chinese economic growth dividend while enhancing creditors' confidence in holding RMB.

“In my perspective， Singapore's inclusion of RMB financial investments into its OFR will greatly benefit institutional investors of both countries as well as joint construction of industrial parks， like helping enterprises avoid currency fluctuation risks and increase trade efficiency，” Bai added.

In recent years， economic and trade cooperation between the two countries has been deepened and expanded from China's coastal to inland regions， with focus on high-tech industries， environmental protection and green industries. Early in 1994，the Chinese and Singapore governments signed an agreement in joint development of the China-Singapore Suzhou Industrial Park. Thanks to efforts from both sides， the industrial park has become one of China's first National New-type Industrial Demonstration Bases and one of the first National Eco-industrial Demonstration Parks. In 2008， ground was broken in the construction of Tianjin Eco-city， the world's first-ever eco-city as a joint program between two nations. By mid-June this year， a total of 3，639 enterprises participated in its construction.

When Chinese President Xi Jinping visited Singapore in November 2015， governments of both countries issued a Joint Statement， pledging to“continue the good work achieved by the seven provincial-level business councils， as well as our private sector-led and government-supported projects such as the Sino-Singapore Guangzhou Knowledge City， the Singapore-Sichuan High-tech Innovation Park， the Sino-Singapore Jilin Food Zone and the Sino-Singapore Nanjing Eco High-tech Island. Both sides shall also endeavor to inject new impetus into Singapore's participation in China's regional development.”