| Global Times | March 05, 2012 01:20
By Fang Yunyu
Companies based in South China's Guangdong Province may be able to apply for yuan-denominated loans in Hong Kong, a landmark move to promote the internationalization of the yuan, analysts told the Global Times Sunday.
Provincial authorities are discussing ways to experiment with allowing qualified companies to get yuan loans from Hong Kong banks, which charge lower interest rates than their mainland counterparts, China Securities Journal reported Saturday.
It is a further step to make the yuan an international currency, because it can add another mechanism for yuan repatriation, Zhang Qi, an analyst at Shanghai-based Haitong Securities, told the Global Times yesterday.
Currently, qualified Chinese and foreign companies based in the mainland can issue yuan-denominated dim sum bonds in Hong Kong, which provides a channel for the yuan deposits in Hong Kong to flow back to the mainland. In January, 10 domestic banks got green light to issue a total of 25 billion yuan worth of dim sum bonds in Hong Kong.
"Hong Kong has already accumulated a large amount of yuan deposits, mainly due to the expectations of the yuan's appreciation against the dollar," Lu Zhiming, an economist at the Development Research Department of Bank of Communications, told the Global Times Sunday.
The Hong Kong Monetary Authority disclosed Wednesday that the yuan deposits in Hong Kong reached 576 billion yuan ($91.44 billion) by the end of January.
Hong Kong residents still lack other channels to invest the yuan, besides buying the limited volume of dim sum bonds and investing in yuan-denominated funds set up by the qualified foreign institutional investors, Lu said.
For the mainland companies, the lower interest rates will be an incentive to apply for yuan loans in Hong Kong, he said. Due to capital controls, the mainland's policy interest rate for one-year loans stays at 6.56 percent a year, but the actual borrowing costs are much higher for many private companies.
In contrast, the cost of borrowing is much lower in Hong Kong as a result of competition among the banks, Lu said.
China has taken various measures to promote the yuan's internationalization, aiming to make it an international currency for investment and gradually reduce the country's reliance on the dollar.
Earlier this year, Li Dongrong, assistant governor of People's Bank of China, said in a statement that the central bank will encourage commercial banks to go global and offer cross-border yuan-denominated financial services, an act to further expand the use of the yuan in international trade and investment.
"If the yuan becomes fully convertible and serves as an international reserve currency, China will have much more influence on world trade, finance, as well as the global economy, just like the US has," said Zhang of Haitong Securities.
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