SINGAPORE: Foreign exchange trading of the Chinese currency, yuan is taking on in a big way in Singapore.
Total yuan trade in Singapore swelled to S$428 billion in 2011, a 10-fold jump from last year.
This cements Singapore's position as the second biggest offshore centre for yuan trade after Hong Kong.
Analysts said there is still more room for the yuan market to develop in Singapore.
Capital controls in China have been a stumbling block for foreign investors to gain access to the yuan.
But in 2009, China began to allow its currency to be used to settle international trades.
This is through a scheme which allows several Chinese cities along with Hong Kong, Macau and some Southeast Asian countries like Singapore to be centres for yuan trade.
Singapore's reputation as a major trade redistribution centre and a gateway to ASEAN has managed to attract a steady stream of investors keen to transact the yuan.
And experts said other inherent attributes put it in good stead to play a more active role in the increasingly popular offshore yuan trading sphere.
Alvin Liew, senior economist, at UOB said: "Singapore is very established as a financial centre in the Asian region. We have good financial infrastructure. We have a lot of banks here, (and) we have the financial expertise for that trading."
According to Chinese data sources, total trade (exports and imports) denominated in yuan was just (RMB 197 billion) S$40 billion in 2010.
It hit S$428 billion in the first nine months of 2011, a ten-fold increase since the global offshore trading measures began in the second half 2010.
However, ongoing uncertainties on the world stage may determine how further growth will play out in 2012.
External factors such as the resolution of Europe's debt crisis and global financial market stability will certainly give the Chinese government more confidence to set up other offshore yuan centres.
But whether or not Singapore becomes the ultimate centre for yuan trade, still very much depends on China's policy direction.
Daryl Liew, head of Portfolio Management, at Reyl Singapore, said: "If you look at it from a China perspective, they've basically entered into all these swap agreements with various central banks in the world. They definitely see Singapore as one of the key spots, that's why the Chinese government has entered into a swap agreement with the Monetary Authority of Singapore - effectively to provide enough liquidity should they need it."
But Hong Kong's dominance in yuan trading raises concerns over the prospects of other potential offshore yuan markets.
Hong Kong banks handled over S$265 billion cross border trade in the first nine months of 2011.
This accounts for over 80 per cent of China's total trade settlement in yuan.
Still, some analysts remain optimistic.
Sim Moh Siong, currency strategist, at Bank of Singapore, said: "It's important that the internationalisation moves in tandem with the reform of the Chinese domestic financial markets. If that can happen smoothly, then I think overall it will bode well for Singapore."
While Hong Kong will likely continue to be the main centre for offshore yuan trade, Singapore may just grab a large slice of that business going forward.