Bloomberg News

China May Appoint Yuan Clearing Bank in Singapore, Deutsche Says

December 14, 2011

Dec. 14 (Bloomberg) -- The People’s Bank of China may let Singapore host a yuan-clearing bank, which will make it the second place after Hong Kong outside of the mainland to have one, according to Deutsche Bank AG.

The amount of China’s overseas trade settled in yuan will probably rise to 2 trillion yuan ($314 billion) this year from 506 billion yuan in 2010, the bank said in a note dated Dec. 13. Hong Kong banks handled 1.49 trillion yuan of this in the first 10 months of 2011, more than double last year, it said.

“To promote renminbi cross-border trade settlement with China’s trading partners in Asean countries, it is possible the PBOC will consider appointing another offshore renminbi clearing bank in 2012, most likely in Singapore,” Deutsche’s Singapore- based strategists Linan Liu and Dennis Tan wrote in the report. Asean is the Association of Southeast Asian Nations.

London and New York are also vying to be offshore yuan trading centers. Bank of China Hong Kong Holdings Ltd. has been Hong Kong’s sole yuan-clearing bank since Dec. 2003.

Cross-border yuan trade settlement will rise to about 3.7 trillion yuan next year because there are more channels for repatriation, the analysts wrote. Offshore loan growth and accumulation of trade gains will contribute to a combined yuan deposit base in Hong Kong and Singapore of 1.5 trillion yuan in 2012, they said.

Gross issuance of yuan-denominated bonds in Hong Kong by domestic and overseas companies will rise to 280 billion yuan next year, the analysts said. Companies have sold 147.7 billion yuan of so-called Dim Sum bonds this year, Bloomberg data show.

Returns

Deutsche Bank estimates returns on liquid Dim Sum bonds will be 3.9 percent to yuan-based investors and 7.4 percent for those funded in U.S. dollars in 2012, based on estimated annual yuan appreciation of 3.5 percent.

Deutsche Bank’s forecast may be affected by “the pace of RMB appreciation and directional risk, as well as volatilities of the offshore-onshore spot basis,” Liu and Tan wrote. These will be more acute in the first half of 2012 amid continued risk aversion in global markets that will damage growth, he said.

“The bearish case of our forecasts would be a 30 percent trim in our projected growth of the offshore market,” the analysts wrote.

--Editors: Joshua Fellman, Scott Lanman

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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