Singapore Establishes Yuan Trading To Support Economic Growth

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The city-state of Singapore has scored another victory in its quest to establish the nation as Asia’s leading financial center. Singapore has signed a deal with China to directly exchange currencies, becoming the second off-shore Yuan trading center, along with Hong Kong. London also recently announced that it will begin to trade the Yuan. This move is essential for the Singapore as it tries to maintain economic growth amid changing dynamics and an unstable global economy.

Singapore Establishes Yuan Trading To Support Economic Growth

Singapore and China agree to Yuan trading

China and Singapore have also agreed to establish a $8.2 billion quota for financial institutions looking to invest in domestic Chinese securities. Access to such securities is heavily regulated and restricted by the Chinese government, so this is a big step for Singapore. In exchange, Chinese investors will be able to directly invest in securities in Singapore using the Yuan.

Combined, all of these steps are helping Singapore establish itself as Asia’s premier financial trading center. Already, Singapore supports one of the largest financial sectors in the world. While Singapore is not as well known as London or New York City in regards to its financial services, it is now considered the world’s fourth-largest financial center. Singapore’s primary competitor in Asia is Hong Kong, which also ranks among the world’s largest financial services centers.

Singapore’s economic development

Singapore finds itself in a tricky position. The country is arguably the world’s best example of modern economic development. Since World War II, few countries have been able to manage their economic growth as well as Singapore. Before China opened up, Singapore established itself as a high-end manufacturing hub. While manufacturing remains a huge part of the Singaporean economy, rising costs and increasing competition from its neighbors, such as Malaysia, pose a threat.

Instead of trying to maintain a lead in manufacturing, the Singaporean government is encouraging growth in other sectors and continually working to diversify the economy. The decline of Singapore’s manufacturing sector may be inevitable, so it is essential to develop alternatives. Currently, financial services are seen as offering one of Singapore’s best chances of maintaining its economic growth.

Besides its massive public housing sector, which houses about 80% of Singaporean citizens, the country has few social safety nets. The government instead relies on market forces to allocate resources and works to maintain a low unemployment rate by encouraging a business-friendly environment. Singapore’s unemployment rate is currently less than 3% and its taxes are among the lowest in the world.

Singapore upgrading workforce

The Singaporean government has also been trying to upgrade the skills of its workforce. Currently, Singapore’s public education system regularly ranks in the top five in the world. The National University of Singapore is also considered to be among the world’s best. Critics charge, however, that the system focuses on teaching to standardized tests while reducing creativity and innovation. In the view of some critics, the education system is actually detrimental to the country as students learn how to pass tests but don’t learn how to think in dynamic and fast-changing environments.

The People’s Action Party (PAP), which has overseen the country since independence from the United Kingdom, is finding itself increasingly embattled. Tight controls on elections and the media have prevented the rise of a serious opposition party, but changing attitudes among the Singaporean population and a strong desire for increased freedoms may force changes in the future. Approval ratings among the PAP are already at all-time lows and opposition parties are slowly gaining power and seats in the national parliament.

If the PAP were thrown from power, foreign MNCs may get cold feet and slow investments or even begin to pull out.  The PAP has been able to attract huge amounts of FDI by creating a pro-business atmosphere. Union activities are also severely restricted, regulations are lax, and taxes are extremely low. These factors have helped Singapore become one of the world’s richest countries, but if the PAP is thrown from power, companies may lose confidence. And for the PAP to remain in power, economic growth is essential.

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