Beijing has eased the restrictions on Chinese companies seeking to raise funds overseas, after a record monthly decline in China’s foreign exchange reserves in August.
The decision to loosen capital controls on inbound funds stands to boost capital inflows at a time when big domestic stock market losses and the slowing Chinese economy are heightening concerns about capital outflows.
China’s planning agency, the National Development and Reform Commission, has made it easier for Chinese companies to obtain foreign currency bank loans or issue renminbi bonds with a term of more than a year, according to a statement on its website.
“The new policy will simplify the process for Chinese entities to issue offshore bonds. It will give Chinese companies flexibility in terms of timing and the amount of bonds issued as long as it is within the approved foreign debt quota,” said Ivan Chung, head of Greater China credit research at Moody’s in Hong Kong.
Previously, companies needed approval for each deal but now they are only required to register with the regulator. “Like Shanghai-Hong Kong Stock Connect, it is another step forward in integrating the Chinese financial market with the world,” Mr Chung said.
China’s foreign exchange reserves fell 2.6 per cent to $3.557tn in August, a monthly $94bn drop that was the sharpest on record, as the People’s Bank of China sold down some of its stockpile to support the renminbi.
Data from the Bank for International Settlements show that foreign bank claims on China shrank by $77bn in the first three months of 2015, reflecting their reluctance to lend.
“On one level it’s encouraging to see that China has not lost its appetite for pro-market liberalisation, even as volatility and uncertainty have risen. It suggests the leadership understands that problems revealed by market forces can be addressed by market forces as well,” says Michael Kurtz, chief Asia equity strategist at Nomura in Hong Kong.
However, he said it was not clear that Chinese companies would immediately embrace the more open overseas borrowing environment “given expectations for a depreciating renminbi and for rising US dollar borrowing costs versus falling domestic borrowing costs”.
Markets are awaiting a decision from the US Federal Reserve today on whether to raise interest rates for the first time in nearly a decade. Meanwhile, China is considering implementing restrictions on automated trading in its commodity markets, according to market participants who spoke to the Financial Times. The new regulations would define automated traders, require their identity and source of funds to be disclosed, and limit the number of trades they could place in the futures markets.
BY PATTI WALDMEIR
