Being ever so hip to the times, the Singaporeans have gotten on the RMB bandwagon as well. While Hong Kong will still retain advantages dealing in renminbi--it is an erstwhile part of China, after all--it is wary of being left behind. That said, Singapore like Hong Kong possesses the requisite financial know-how, market liquidity, and trading outpost status to make it worthwhile for the (mainland) Chinese to extend RMB trading to. From Reuters:
Beijing's desire to redenominate more of its trade into yuan is giving rise to a new offshore centre in Singapore, but don't expect the same breakneck speed of growth there as in Hong Kong. Many of the commodities that trade in Singapore are the stuff that China needs, though Singapore's trade volumes with China make up only 2 percent of the mainland's total trade, compared with 8 percent in Hong Kong.What is effectively being enabled is access to RMB in Singapore itself for trade settlement without having to course transactions through financial institutions situated either in Hong Kong or the mainland. It is, to be sure, still a more limited system than what Hong Kong has in place since Singapore's availability of RMB is contingent on outside authorities' discretion [read: Chinese capital controls]. Still, it's a significant step in internationalizing the yuan's role as a vehicle currency--especially for Southeast Asia's financial heart.
Even given Singapore's status as a redistribution center for Southeast Asia and even Western markets, the trade volumes are smaller than Hong Kong. That makes it less likely the city state will see a big spike in renminbi-denominated trade settlement, as Hong Kong saw last year, if China indeed chooses a clearing bank for Singapore's yuan trade.
Then there is the issue of liquidity. Singapore does not disclose official figures on yuan deposits, though the amount is probably a fraction of the roughly 408 billion yuan in Hong Kong's banking system. The market cap of Chinese companies listed in Hong Kong after all is 20 times Singapore's.
All that is not to say Singapore's offshore yuan market would not be successful. Having a clearing bank would accelerate the growth for Singapore's yuan deposits, which on an average earn less than in Hong Kong because of the People's Bank of China backstop line and as the city state's banks have to clear any outstanding yuan deals with Hong Kong, earning lower income in the bargain.
Plus, the city state's big lenders including the likes of DBS [Development Bank of Singapore] and funds like Income Partners and Barclays Capital Fund Solutions already offer renminbi products to customers, forming a launching pad of sorts for an offshore market, albeit a mini version of Hong Kong's.
"As an analogy, if RMB is the product, then China should be regarded as the factory, Hong Kong as the main wholesale market and Singapore something of a retail outlet," Deutsche Bank said in a note [my emphasis].
Here's hoping these experiments work, demonstrating to the PRC that making the yuan more freely traded brings benefits to its issuer. From such experiments flow bigger things desirable in remedying global financial imbalances. The end point, of course, would be making the RMB an openly traded currency on world markets--for all that implies to Chinese capital flows. Full convertibility is not an unrealistic long-term possibility.
Remember, 7% of all trade with China is reportedly now being invoiced in RMB from virtually none two years ago. At such a rate...well, you can extrapolate the endgame. I hope I live to see the day when the Chinese tell the Americans to pay them in RMB after getting fed up with never-ending dollar decimation. That will be the day that the world is freed from dollar hegemony. Maybe we should make it a global holiday ;-)
UPDATE: The FT has a neat story on the Hong Kong v Singapore rivalry.