Bloomberg News

China Lets Foreign Banks Bring in More Borrowings, WSJ Says

March 27, 2012

China is letting foreign banks bring more funds borrowed overseas into the country after investment fell for a fourth month, the Wall Street Journal reported, citing unidentified people familiar with the situation.

The National Development and Reform Commission, the country’s top economic planning agency, recently informed the banks about the increases in foreign debt quotas, which range from “high double-digit rises” to a more-than-doubling of 2011 levels, the newspaper said on its website. The report didn’t specify the size of the quotas or give more precise values for the increases.

Foreign direct investment fell 0.9 percent in February from a year earlier. Overseas banks in China had about 1 trillion yuan ($158 billion) of loans outstanding at the end of September, accounting for 2.3 percent of the nation’s total, according to the China Banking Regulatory Commission.

The government is boosting the quotas after cutting “drastically in 2008 to stem hot-money inflows led by expectations on the yuan’s appreciation,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp. “This is more of a normalization move.”

The NDRC didn’t immediately respond to a faxed request today for comment. The agency said in February that banks including Citigroup Inc. and JPMorgan Chase & Co. attended a meeting Feb. 8 to discuss a trial program designed to “support expansion of foreign debts for qualified parties.”

Expand Businesses

Relaxing the debt quota now when borrowing costs are relatively lower will help foreign banks expand their businesses and boost earnings, Lu said. The government is more willing to loosen controls on overseas borrowing after expectations for yuan appreciation eased and concerns about hot money inflows were reduced, he said.

China saw bets on yuan appreciation reverse last quarter with some central bank indicators pointing to capital outflows as the nation’s economy cooled and the European debt crisis worsened. Twelve-month non-deliverable forwards traded at 6.3342 at 4:55 p.m. today in Hong Kong, a 0.4 percent discount to the onshore spot rate.

The move may be aimed at reforming China’s foreign debt management by boosting the proportion of medium-to-long-term debt and to limit short-term borrowing that is “more exposed to hot money inflows or outflows,” said Ding Shuang, a Hong Kong- based economist at Citigroup.

Outstanding foreign debt of foreign financial institutions was $54 billion by the end of 2011, about 12 percent of the nation’s total registered overseas borrowings, according to data from the foreign exchange regulator.

China’s short-term borrowings account for about 72 percent of its total debt and would be equal to 16 percent of the nation’s foreign exchange reserves, official data show.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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