Published Date: 04 November 2019

"Transforming Western China Through Financial Connectivity" - Keynote Address by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at the China-Singapore (Chongqing) Connectivity Initiative (CCI) Financial Summit 2019 on 4 November 2019

Mr Tang Liangzhi, Mayor of Chongqing,
Mr Ong Ye Kung, Minister for Education and MAS Board Member,
Distinguished guests, ladies and gentlemen, good afternoon.
Let me first thank the Chongqing municipality for hosting the second China-Singapore (Chongqing) Connectivity Initiative (CCI) Financial Summit.
  • You have made us feel at home with your warm hospitality and efficient arrangements.
  • You have also shown great vision by expanding since last year the focus of this Summit from just being between Chongqing and Singapore, to the Western Region of China and ASEAN – with Chongqing and Singapore playing key roles as connectors between these two regions.
  • I am delighted to see so many guests from Western China and ASEAN gathered here today.
We have come a long way since the launch of the Singapore-China Chongqing Connectivity Initiative or CCI in 2015.
  • Finance is one of the four key pillars under the CCI.
  • The goal of the Finance Pillar is to facilitate the economic transformation of Western China through greater connectivity and innovation in financial services.
As we approach the 4th year anniversary of the CCI, it is opportune to reflect on the achievements thus far under the Finance Pillar and explore new opportunities ahead.
Let me highlight two key areas of collaboration where the CCI Finance Pillar has made good progress:
  • cross-border financing and investment; and
  • the CCI International Land Sea Trade Corridor
Cross-Border Financing and Investment
Let me begin with cross-border financing and investment.
First, corporates from Chongqing as well as the broader Western Region have been able to diversify their sources of financing through tapping the Singapore loan and capital markets for their RMB and US$ financing needs.
  • From 2015 to the middle of this year, we have seen more than 100 cross-border financing deals, raising nearly US$11 billion in aggregate.
  • Nearly US$4 billion of the financing raised was for corporates from the other Western provinces, demonstrating that the CCI Finance Pillar is benefitting the broader Western Region.
  • Last year, we also saw the first REIT structure with underlying properties from the Western Region listed in Singapore, raising US$322 million.
Second, corporates from Chongqing have generally obtained cheaper cross-border financing from Singapore. 
  • As of July 2019, the average cost of financing through the CCI for Chongqing corporates was 1.4 percentage points lower than the city’s average loan rate.
In short, the Finance Pillar of the CCI has provided Chongqing and Western Region corporates with more financing options, raised their international profile, and lowered their cost of financing.   
CCI New International Land Sea Trade Corridor
A second major milestone in the progress of CCI is the New International Land Sea Trade Corridor (ILSTC) that was announced during Premier Li Keqiang’s visit to Singapore in November last year.
The ILSTC is a game changer for trade between China’s Western Region and ASEAN.
  • Indeed, President Xi Jinping has recognised the ILSTC as an important intersection between the “Belt” and the “Road” which can connect Europe, Central Asia and ASEAN through Belt and Road projects to China’s Yangtze River Economic Belt. 
The ILSTC will reduce the time to transport goods between Western China and ASEAN to just one week, compared to 2-3 weeks with traditional routes.
  • This substantial savings in time has already translated to a significant increase in trade along the ILSTC.
  • Rail volumes via the ILSTC have grown by around 20 times in the past two years.
Let me offer two key suggestions to multiply the benefits of the ILSTC through the Finance Pillar.
First, a dedicated foreign debt quota under the CCI.
The funding required for ILSTC infrastructure development remains sizeable.
  • This includes last mile connectivity within China and with ASEAN, including with Belt and Road Initiative (“BRI”) projects.
  • We need more open and facilitative cross border financing channels.
  • We used to have a dedicated foreign debt quota under the CCI to expedite the approvals and enable corporates and financial institutions to take advantage of favourable offshore financing conditions in a timely manner.  This quota has since been exhausted.
It is timely to restart the dedicated foreign debt quota under the CCI.
Given President Xi Jinping’s emphasis on sustainable development, one possibility is to restart the CCI quota and broaden its scope to green financing of ILSTC as well as BRI projects in ASEAN.  
Second, digitalising the ILSTC.
Technology can help increase the competitiveness of the ILSTC as a trade route. I mentioned last year that digitalising the ILSTC will improve efficiencies. We have seen progress on this front.
The Singapore and Chinese Customs authorities have agreed on a formal framework for the electronic exchange of certain trade documents, such as e-certificates of origin.
  • This is an important milestone in the digitalisation of the ILSTC.
Both countries have also agreed to link up their National Single Window system for trade.
  • Data from either Customs authority can be re-used by the other country’s authority, helping to reduce clearance times.
  • Businesses will benefit from a seamless and more efficient declaration process.
  • The Singapore and Chinese Customs administrations are now working towards carrying out pilot trials between Chongqing and Singapore.
We must raise our ambition level further, to reap the full potential benefits of the ILSTC. 
Let us extend digitalisation of ILSTC to other value added services, including trade, logistics and supply chain financing.
  • The panel sessions tomorrow will touch on these areas in more detail.
  • Their discussions will provide valuable inputs in planning for a comprehensive approach to supporting trade on the ILSTC. 
New Opportunities - Dealing with Climate Risk
Let me now touch on a new area for collaboration between the Western Region and ASEAN under the Finance Pillar - dealing with climate and environmental risks.
  • Climate change is the foremost environmental issue facing the world today. 
  • It is in need of urgent collective action and there is much that the Western Region and ASEAN can do together.
Let me propose two possible areas of collaboration:
  • Disaster risk financing and insurance to protect infrastructure from climate change; and
  • Green finance to encourage sustainable business practices.
Disaster Risk Financing and Insurance
As Chongqing and the Western Region further develop their infrastructure and grow their economies, it is becoming more crucial that we raise the level of ex-ante disaster risk financing and insurance, so that our growth and prosperity can be sustained.
Western China is exposed to natural catastrophes, such as severe weather changes, earthquakes, and floods.
  • The severity and frequency of these natural catastrophes will worsen with climate change. 
  • Like ASEAN, Western China is under-insured against such risks.
Singapore is keen to collaborate with China to explore risk financing solutions.  There are two concrete ways in which we can work together.
First, a natural catastrophe insurance pool to strengthen financial resilience against climate and disaster shocks.
We are happy to share our experience with the Southeast Asia Disaster Risk Insurance Facility (“SEADRIF”), which is established under the ASEAN + 3 countries to provide disaster risk financing for participating ASEAN member states.
Second, securitisation with insurance-linked securities to complement traditional reinsurance.
Insurance-linked securities, or ILS, help transfer insurance risk to a broader range of international investors through the capital markets.
  • This will allow China to diversify outside of China its domestic catastrophe exposures, and lower the amount of catastrophe exposure Chinese reinsurers hold at home.
Singapore can work with Chongqing and the Western Region to explore the issuance of ILS, such as catastrophe bonds.
  • MAS has introduced a ILS grant scheme which helps issuers defray costs associated with issuing an ILS in Singapore.
  • Under the fast-track application scheme, straightforward classic structure deals could be processed within 8 weeks of application.
  • Our universities can engage in gathering natural disaster data in the Western Region that will support the structuring, modelling, and securitisation of ILS transactions.
Green Finance
Besides being a source of financial risk, climate change is also an area of opportunity for long-term value creation.  Thus, the second area we can work together is green financing to promote sustainable business practices.
We are seeing a steady shift among businesses and governments to adopt greener practices.  The projected needs to finance climate-related activity are significant.
  • For example, China has estimated that it will require US$450-600 billion of investment annually, to achieve its green policy goals under its 13th Five Year Plan.
  • ASEAN will need an estimated US$200 billion in green investment annually until 2030, according to a study by the United Nations Environmental Programme and DBS Bank.
Green financing is a natural next step for the Western Region.
  • China has made significant advances in laying the necessary foundation to support green financing.
  • I understand that President Xi Jinping has tasked Chongqing to be “a leader” of green development along the Yangtze River Economic Belt.
Singapore can support the green financing needs of Chinese companies.
  • ICBC Singapore issued in April this year, its first green bond offering in three currencies totalling US$2.2 billion.
  • We look forward to more Chinese financial institutions and corporates doing the same.
  • MAS has introduced a Sustainable Bond Grant scheme.
  • Corporates issuing green bonds in Singapore can apply for this grant, which aims to offset the additional costs borne by green bond issuers to ascertain their green status.
Singapore is also emerging as a centre for green loans.
  • The Agricultural Bank of China raised a US$200 million green loan in Singapore just two months ago.
There is a growing pool of foreign investors in Singapore looking to invest in green projects including BRI projects in the region.
  • Like their Chinese counterparts, Singapore financial institutions have embarked on green initiatives and collaborations to advance projects and investment opportunities under the BRI. 
  • DBS Bank is one of the 27 institutions that signed up to the Green Investment Principles for the BRI at the 2019 BRI Forum. 
There is scope for deeper collaboration between ASEAN and China in green finance.
  • ASEAN has developed the ASEAN Green Bond Standards - common standards that can be applied across ASEAN.
  • ASEAN participants will discuss tomorrow developments in green financing in their countries.
Let me conclude.
  • The CCI Finance Pillar has achieved significant milestones over the past four years.
  • Our financial collaboration will continue to deepen and broaden as we cooperate in both old and new frontiers.
  • The panel sessions tomorrow are a good start to exploring further connectivity between the Western Region and ASEAN.
  • I challenge all participants to look for new opportunities during these sessions to advance the economic development of the Western Region and ASEAN.
I wish you fruitful discussions. Thank you.