Offshore yuan loans stopped
Source: Agencies |
August 3, 2011, Wednesday
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Print Edition
Print Edition
CHINA'S central bank has halted offshore yuan borrowing by domestic companies, a move seen as an attempt to clamp down on hot money flows at a time when the authorities are still tightening policy to battle inflation.
The move is unlikely to slow the growth of the offshore yuan market in Hong Kong as China still encourages the outward flow of yuan via trade settlements and foreign direct investment and has recently tweaked rules to encourage trade.
Citing unidentified sources, the Shanghai Securities News reported yesterday the People's Bank of China had told banks in mid-July that it would stop accepting applications for direct offshore yuan borrowing from Chinese mainland firms.
The step may hit a growing trend among mainland companies of borrowing relatively cheap offshore yuan in Hong Kong and remitting it home for business purposes to circumvent tight domestic cash conditions on the mainland.
Borrowing rates in the offshore market are lower compared with onshore due to a shortage of investable yuan-linked assets and on strict curbs to cross-border capital flows.
"At a time when the authorities are tightening policy, it seems odd that mainland companies can borrow cheap funds in Hong Kong and remit them onshore, so this seems like an extension of the tightening," said a strategist at a European Bank in Hong Kong.
The Hong Kong Monetary Authority, the city's de-facto central bank, denied such a policy move had taken place.
"The HKMA has checked with the People's Bank of China, and understand that offshore yuan borrowing by domestic companies was never allowed in the first place," it said in a statement.
"As such, reports that such a service has been stopped are incorrect. This is the PBOC's response to media queries, and does not represent a change in policy," it said.
On Monday, the PBOC reiterated that taming inflation remained its policy priority. Since October, it has raised interest rates five times and bank requirement reserves nine times to prevent rising prices from fuelling social unrest.
But even with the steady tightening, China's inflation hit a three-year high of 6.4 percent in June.
Tightening monetary conditions have forced small- to medium-sized mainland firms to tap the shadow banking system, where anecdotal evidence shows lending rates are as high as 18 to 25 percent, and of late the international debt and offshore yuan markets.
The move is unlikely to slow the growth of the offshore yuan market in Hong Kong as China still encourages the outward flow of yuan via trade settlements and foreign direct investment and has recently tweaked rules to encourage trade.
Citing unidentified sources, the Shanghai Securities News reported yesterday the People's Bank of China had told banks in mid-July that it would stop accepting applications for direct offshore yuan borrowing from Chinese mainland firms.
The step may hit a growing trend among mainland companies of borrowing relatively cheap offshore yuan in Hong Kong and remitting it home for business purposes to circumvent tight domestic cash conditions on the mainland.
Borrowing rates in the offshore market are lower compared with onshore due to a shortage of investable yuan-linked assets and on strict curbs to cross-border capital flows.
"At a time when the authorities are tightening policy, it seems odd that mainland companies can borrow cheap funds in Hong Kong and remit them onshore, so this seems like an extension of the tightening," said a strategist at a European Bank in Hong Kong.
The Hong Kong Monetary Authority, the city's de-facto central bank, denied such a policy move had taken place.
"The HKMA has checked with the People's Bank of China, and understand that offshore yuan borrowing by domestic companies was never allowed in the first place," it said in a statement.
"As such, reports that such a service has been stopped are incorrect. This is the PBOC's response to media queries, and does not represent a change in policy," it said.
On Monday, the PBOC reiterated that taming inflation remained its policy priority. Since October, it has raised interest rates five times and bank requirement reserves nine times to prevent rising prices from fuelling social unrest.
But even with the steady tightening, China's inflation hit a three-year high of 6.4 percent in June.
Tightening monetary conditions have forced small- to medium-sized mainland firms to tap the shadow banking system, where anecdotal evidence shows lending rates are as high as 18 to 25 percent, and of late the international debt and offshore yuan markets.
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