● Chinese President Xi Jinping to visit Singapore on 6-7 Nov to mark 25 years of diplomatic ties between the two countries. We expect the focus to be on potential upgrade of China-Singapore FTA, initiatives in offshore RMB liberalisation and the third govt-to-govt project.
● In our view, the potential beneficiary of an FTA upgrade will likely be the services sector if some barriers to investments are lowered. China is Singapore's largest trading partner—14% of total trade.
● We expect Singapore to remain a major anchor for offshore RMB activities—benefitting its banks through greater RMB trade and capital market activity (DBS as proxy), as well as more opportunities for infrastructure funding (UOB and OCBC exposure in ASEAN). The ability to offer more RMB-denominated products could benefit SGX.
● Chongqing could be proposed as a site for the third govt led project. This would likely involve Singbridge, which already has a stake in Raffles City Chongqing, a joint mixed use development with Capitaland. The collaboration could also expedite Sembcorp Industries' conditional agreement to acquire and develop 1,620 MW of power capacity in Chongqing.
Upgrade of the China-Singapore Free Trade Agreement (CSFTA)
In July, Chinese President Xi Jinping noted that China is ready to begin negotiations with Singapore on upgrading the existing China Singapore FTA. China is Singapore's largest trading partner representing 14% of total trade, having overtaken Malaysia in 2013. Out of exports of value added (exports which end up as final demand), China accounts for 5.9% of Singapore's GDP. In our view, the potential beneficiaries of an FTA upgrade are likely to be in the services sector, as manufacturing tariffs for Singapore exports to China are already quite low. The CSFTA could also be a testbed for China to engage in more comprehensive regional free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and Trans-Pacific Partnership (TPP) Agreement.
Finance industry agreements—more initiatives likely in offshore RMB liberalisation
Outside of Hong Kong, Singapore has been a major anchor for offshore RMB activities, which is likely to continue to expand going forward.
We see Singapore banks benefitting on two fronts:
(1) More RMB trade and capital market activity through Singapore—likely to help their transaction banking, treasury and wealth management businesses; and
(2) more opportunities for infrastructure funding in the region under the 'One Belt, One Road' initiative.
This could also mean reciprocity by the Singapore government and better market access for Chinese banks. Over the past couple of years, Singapore banks have been working on building their RMB balance sheets in both Singapore and Hong Kong. They have also built up better relationships with Chinese corporates who are looking to invest in ASEAN. DBS is likely to benefit the most from better capital market activity and trade flows. UOB and OCBC are likely to benefit more from infrastructure funding in ASEAN.
The ability to offer a wider suite of RMB-denominated products and solutions could also benefit SGX, which is looking to diversify its business mix.
Third government led project after Suzhou and Tianjin
The Chinese government has also proposed a third government-to-government project to spur development in the western region, following earlier projects at Suzhou Industrial Park (1994) and Tianjin Eco-City (2008). According to the Straits Times, Chongqing is likely to be the site of the new project.
We expect the project to involve Ascendas-Singbridge, which already has a stake in Raffles City Chongqing, a joint development with CapitaLand (63% effective stake) for a mixed-use site that integrates a shopping mall with eight towers for residential, office, service residence and hotel. Raffles City Chongqing is CapitaLand's single largest investment in China with a total project development cost of Rmb21.1 bn, and is expected to be completed progressively in phases from 2018.
Sembcorp Industries is also collaborating with Chongqing Energy Investment Group on the acquisition of a 49% stake in an existing 300 MW coal-fired power plant as well as the joint development of an adjacent 1,320 MW coal-fire power plant. Chongqing Energy Investment Group is owned by the Chongqing Municipal Government and is the largest energy production group in Chongqing. The G2G collaboration could potentially expedite the joint venture agreement which is pending approval by Chinese authorities. (Read Report)
Source : Credit Suisse Asia Pacific Equity Research