by Carl Wegner, Greater China Head of Global Transaction Banking, Deutsche Bank
Despite a softening in growth projections, China remains a major consumer of both hard and soft commodities and imports of these continue to grow, particularly base metals and agricultural commodities. With many soft commodities such as palm oil, rubber and other agricultural products traded in Singapore, relentless demand for commodities is likely to prove a major factor in the emergence of Singapore as a potential renminbi regional hub for the ASEAN-China trade corridor.
We have already witnessed significant developments in Singapore’s growth as a renminbi centre this year. On its first day of operation on 27 May 2013, RMB 1.6bn  worth of transactions were cleared in Singapore. Although the offshore renminbi market in Singapore remains a fraction of the size of that in Hong Kong, this is a vital step in its evolution, further supported by the Singapore government’s recent doubling of a currency swap agreement with China to RMB 300bn.
The choice of Singapore as a centre for offshore renminbi is both a logical and an attractive one, not least due to its leading role in soft commodities trading. Commodity transactions in the ASEAN region have traditionally been denominated and settled in USD, but this convention becomes less logical when USD is not the base currency of either counterparty: for example in a Chinese company’s purchase of Malaysian rubber. Instead, it would be more cost efficient to use the base currency of one or the other counterparty – which could help reduce as much as 2% of a transaction’s cost. As China’s prominence in world trade and on-going process of currency liberalisation continues, Singapore is set to be one of the drivers and beneficiaries of this important development in both commodity trading and the wider financial markets.