The initiative is an extension of an agreement that has been in place between Singapore and two business parks, the China-Singapore Suzhou Industrial Park (SIP) and Singapore-Sino Tianjin Eco-City (SSTEC) since 2014, the Monetary Authority of Singapore (MAS) said.
Banks in Singapore will now be able to lend in RMB to companies in Suzhou and Tianjin, while companies in the Chinese cities will be allowed to issue RMB bonds in Singapore, MAS said.
Companies in the Chinese cities will be allowed to repatriate 100% of the proceeds raised by these bonds, to increase the incentive for them to do so, MAS said.
Companies based in SIP will also be able to borrow from Singapore companies, to encourage them to expand into Singapore and set up finance centres in the country, the statement said.
Within SSTEC, privately owned banks will now be allowed to borrow from Singapore-based banks, to boost the development of the Suzhou banks and allow them to establish commercial relationships with banks in Singapore.
Singapore and China also hope to improve financial connections to support projects under China's 'one belt one road' economic plan, in order to help Chinese companies access ASEAN markets through Singapore, MAS said.
Beijing-based finance and investment infrastructure expert Helena Chen of Pinsent Masons, the law firm behind Out-Law.com said: "This follows the RMB bond issued in London recently: it is another initiative to facilitate the internationalisation of the RMB."
Singapore supports the including of the RMB in the International Monetary Fund's special drawing rights (SDR) basket of currencies, as the use of the Chinese currency in payments, trade and investments "has grown rapidly in recent years", MAS said.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on the value of several international currencies – currently the US dollar, euro, yen and pound sterling.
MAS managing director Ravi Menon said: "This has been a fruitful year for financial cooperation between Singapore and China. The initiatives announced today are a testament to the excellent relations between MAS and our counterparts in China. We look forward to strengthening these relations and forming new pathways as we grow our financial markets together."