Companies in Chongqing, in China's south-west, can now issue yuan bonds in Singapore and repatriate fully the funds raised, under a new directive released by the People's Bank of China's Chongqing operations office yesterday.
The decision by the PBOC further strengthens growing financial linkages between the two countries.
The Monetary Authority of Singapore (MAS) welcomed the move by the Chinese central bank to allow these cross-border yuan transactions between the major inland commercial hub of Chongqing and Singapore.
Equity investment funds in Chongqing can also directly invest in Singapore and the wider Asean region, while individuals can now remit yuan to Singapore for current account settlements.
These arrangements are part of the financial cooperation agreement reached last November when Chinese President Xi Jinping made his state visit to Singapore.
In a statement yesterday, MAS welcomed the move to expand the cross-border yuan initiatives, which have already been implemented in Shanghai and Tianjin.
The authority said: "The initiative will facilitate greater use of yuan in the region and contribute to the growth of the offshore yuan market in Singapore.
"This will be useful in achieving the objective of enhancing modern connectivity and services in China's western region."
Standard Chartered Singapore also applauded the move. It was the first foreign bank to provide a cross-border yuan loan to a client in the Tianjin Eco City last year after such transactions got the go-ahead.
"We are delighted that a similar scheme is now replicated to Chongqing, opening this financing channel to significantly more businesses in China. This is a quantum leap for the collaboration between the two countries and will enhance Singapore's position as a leading [yuan] offshore centre outside Greater China," said StanChart's transaction banking head Goh Beng Kim.
Singapore is one of China's partners of choice for the project to internationalise its currency. The nation is the second-biggest offshore yuan hub, behind Hong Kong.
Still, the path is not proving to be one of steady growth.
Singapore's yuan deposits, a key driver to grow the offshore market, dropped 16 per cent quarter on quarter to 189 billion yuan (S$40 billion) at end-December, as the currency lost its lustre in the money market following multiple yuan depreciations in the second half of last year.