April 20 (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.
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. [ID:nL3E7FI3NA]
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 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.
WEEK IN REVIEW:
* Car maker BYD Co Ltd , which counts U.S. billionaire Warren Buffett (BRKa.N) as an investor, sold 1 billion yuan in three-year yuan bonds at 4.5 percent, the upper end of an earlier price guidance after BYD posted soft results for the March quarter. Zhongwang Holdings and China Power New Energy are meeting investors for possible deals in a holiday-shortened week.
* While the dim sum deal flow has picked up recently, total issuance this year may be only around $50 billion this year, roughly half of some early industry estimates, according to Citibank's co-head of Asia-ex Japan debt syndicate desk Terence Chia. About $20 billion of such bonds have already been issued.
* More FX swaps. New Zealand and Uzbekistan became the latest entrants to the bilateral currency swap agreement club by signing deals with China this week. In total, Beijing has now signed bilateral deals with 10 partners since the end of 2008 totalling nearly 830 billion yuan to boost the international use of the Chinese currency.
* Institutional investors have made a beeline to the 10.48 billion yuan Hui Xian REIT IPO , the territory's first yuan-denominated equity offering. The institutional portion of the offering was covered on the second day itself with a big chunk of the order book coming from London. Local media reported hedge funds like Och-Ziff and Fortress have too subscribed to the offering.
* In contrast, retail investors have been relatively cool to the launch with expensive margin financing costs and the structure of the product being cited as the main reasons. The IPO which priced at the low end of a proposed band will start trading on April 29.
* While there has been a significant build-up of renminbi deposits in the territory, that doesn't mean Hong Kong has the capacity for a rush of new products, Martin Wheatley, the outgoing chief executive of the Securities and Futures Commission said. The RMB hype is getting ahead of itself, Wheatley added.
CHART OF THE WEEK:
Yuan trade settlement: link.reuters.com/syt98r
After a blazing start to the trade settlement process in yuan last year, growth slowed somewhat in February which analysts attributed to the Lunar New Year holidays. But this is expected to be a temporary blip and volumes are set to rise in coming months. RECENT STORIES: Yuan fever to drive investors to REITs [ID:nTOE72006R] More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS THOMSON REUTERS SPEED GUIDES
(Additional reporting by Tara Joseph-Hui, Jonathan Gordon, Prakash Chakravarti at IFR and Zhou Xin in BEIJING, Editing by Kevin Plumberg)