Singapore-Tianjin Pact to Boost Cross-Border Use of RMB
Singapore and the north China city of Tianjin are working together to boost the cross-border use of renminbi in payments for goods and services. In a move that follows approval from the central bank,the Tianjin Banking Association has inaugurated its Interim Measures on the Management of Business Innovation Pilot of Cross-border Renminbi between Tianjin and Singapore (No. 173 of the Tianjin Banking Association Office document No. 173 [2016]). This is designed as a framework for greater use of the currency that includes the use of proceeds from offshore bond offers. Singapore has been taking on a growing role in the offshore renminbi business and Tianjin,as an important north China port,has set its sights on playing a big role in the "One Belt,One Road" strategy that hopes to boost trade and investment ties with neighboring economies. Tianjin also has been designated as a focus of north China's regional development under the Beijing-Tianjin-Hebei development strategy. In order to assess the prospects of greater banking cooperation under this program,China Forex spoke to An Li,vice president of Huaxia Bank's Tianjin branch. The following Q & A examines that issue and what it could mean for the Tianjin banking sector.
Q: The People's Bank of China has approved a cross-border renminbi business pilot project in Tianjin. An earlier trial program has more recently been expanded to cover all of Tianjin and interim measures have been put in place by the local banking association. What new opportunities do you think this will usher in for the banking sector?
A: The new policy addresses the needs of renminbi internationalization and it is an indication of growing financial cooperation between Tianjin and Singapore.
Singapore is already a significant offshore renminbi center,and this new project will make a big contribution to renminbi internationalization. More and more exporters from ASEAN countries are accepting renminbi letters of credit,and the Chinese currency is playing an increasingly important role in foreign exchange settlements in ASEAN countries.
The policies under the Tianjin cross-border renminbi pilot project,which were first released in 2014,have already made a substantial contribution to Tianjin's economic development. This is particularly true in encouraging the borrowing of renminbi from Singapore banks. Initially,the policy was restricted to part of the city and there were restrictions on the borrowing amounts. This policy has since been broadened so that companies registered anywhere in Tianjin can borrow renminbi from Singapore's banks. These companies also have more freedom in deciding where and how they use the funds. Additionally,equity investment funds in Tianjin can make foreign investments in renminbi,and individual residents in Tianjin can also conduct cross-border renminbi settlements with Singapore under the current account. These policies have brought significant opportunities to companies and individuals in both cities.
Companies and individuals in Tianjin will have more convenient cross-border renminbi settlements and more financing and investment channels with this policy support. At the same time,through the combination of settlement and financing products,banks in Tianjin can help their clients achieve more comprehensive cross-border settlements and financing. Additionally,financial institutions in Singapore will build closer relationship with the banks and enterprises in Tianjin through this cooperation,and they will have new opportunities in business development.
In addition to cross-border renminbi settlements,banks can provide credit support for the cross-border borrowings and foreign bond issuance through cross-border guarantees. The inflow of the enterprises' overseas funds will in turn bring opportunities for deposits,wealth management and other services.
As the renminbi becomes a more international currency,local enterprises are also being encouraged to "go out" and participate in the global market. These banks will follow their customers into the international market.
Q: Under the pilot program,companies registered in Tianjin can issue renminbi bonds in Singapore. In your view,what do banks need to do to provide services related to these offerings and the use of funds raised?
A: In recent years,companies in Tianjin have displayed a growing appetite for offshore borrowings and offshore bond offers. The number of issuers has expanded and many of the issuers this year were making their first such offer this year.
In the past,exchange rate hedging and capital repatriation have been the two major stumbling blocks for issuing bonds offshore and denominated in US dollars. Since most of these offshore debt offers are for more than three years,the hedging costs have been high. And before the central bank released its latest policy reforms,there had been a shortage of proper channels to repatriate the funds raised from the offshore bond sales. It was possible to repatriate funds through the Qualified Foreign Institutional Investor channel or through fund pooling but this increased the costs.
Companies in Tianjin will be able to avoid exchange rate risks by issuing bonds in renminbi. This is particularly helpful for state-owned enterprises,which traditionally are more risk averse. This will have a positive effect on offshore bond issues by Tianjin companies.
Additionally,the extent of offshore borrowings has been increased,and as a result there will be more companies taking an interest in this kind of financing activity - borrowin