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BIZCHINA / News
More foreign firms can sell yuan bonds
By Xin Zhiming (China Daily)
Updated: 2007-08-10 16:57
The government will allow more foreign institutions to sell
yuan-denominated bonds in the country and buy foreign exchange with the
proceeds to remit the money overseas, Deng Xianhong, deputy head of the
State Administration of Foreign Exchange, said yesterday.
China permitted foreign institutions to issue yuan bonds in the country
in 2005. Two international financial institutions, the Asian Development
Bank and the International Finance Corp, have got the green light to do
so but have been told it's mandatory to spend the money in China.
The new move will not only quench the capital thirst of some foreign
institutions in China, but also help reduce the country's
balance-of-payment surplus, and thus ease the pressure on the government
to revaluate the yuan, analysts said.
Some foreign banking institutions need to extend yuan-denominated loans,
but they are weak in absorbing yuan deposits, said professor of finance
in Renmin University of China Zhao Xijun. "The new move will add to their
source of yuan capital."
China slashed quotas for short-term overseas borrowings both by domestic
and foreign financial institutions in March. Foreign banks and
non-banking financial institutions can borrow from overseas up to only 60
percent of the 2006 level by the end of next March, increasing their
thirst for the Chinese currency if they are do renminbi business.
The move will also help reduce China's capital account surplus, Zhao
said. The surplus was $10 billion last year, which, coupled with the
country's whopping current account surplus, constitutes the pressure on
the government to revaluate the yuan and rein in liquidity in the market.
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The measure is similar to China's qualified domestic institutional
investor (QDII) scheme, he said, which was launched last April to allow
domestic institutions to channel client funds overseas.
The scope of qualified institutions was expanded with the authorities
recently allowing banks, brokers, insurers and asset management companies
to invest in overseas equities using client money.
Initially, Zhao said, the yuan bonds issued by foreign institutions would
be small. But in the long run, they could become sizable to have a
substantial impact on the market. "The process should be gradual to avoid
risks and shocks."
Some financial institutions with adequate capital and high ratings will
be selected first and later other non-financial institutions will be
allowed, he said.
During the Asian financial crisis a decade ago, some foreign institutions
in Hong Kong had issued bonds to pool in the HK dollar before joining
hands with international speculators to dump the currency to attack the
financial market of the island.
"It is a lesson we should learn from," Zhao said.
(For more biz stories, please visit Industry Updates)
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