Others News
- Govt. to permit more yuan debt raising
Date: 10-Aug-2007 Sources: (Shenzhen Daily)
THE government Thursday flagged a further relaxation of its capital controls aimed at reducing its balance-of-payments surplus and so relieving upward pressure on the yuan.
The government will allow more foreign institutions to sell yuan bonds in China, buy foreign exchange with the proceeds and remit the money overseas, Deng Xianhong, vice head of the State Administration of Foreign Exchange, the currency regulator, told a forum in Beijing.
The government has so far permitted only two international financial institutions, the Asian Development Bank and the International Finance Corp., to sell yuan bonds in China. They have had to spend the money within China.
'We will allow more foreign institutions to issue yuan bonds in China and expand the utilization of the proceeds. We will allow them to use the yuan proceeds to buy foreign exchange and then remit them out of China,'Deng said.
The announcement is the latest in a string of policy moves by China to encourage capital outflows and stem capital inflows.
The authorities recently permitted qualified banks, brokers, insurers and asset management companies to convert client money into foreign exchange and invest it in overseas equities, a relaxation that economists say could trigger the outflow of tens of billions of U.S. dollars out of China.
But analysts said that, with the yuan rising at about 5 percent a year, it would make little sense to swap the proceeds of local-currency debt into U.S. dollars.
'Why would you want to raise money domestically for use offshore if there's a pretty good chance that you're going to incur a big translation loss when you come to pay it back??asked Adrian Foster with Dresdner Kleinwort in Beijing.
The yuan has risen 7 percent since it was revalued by 2.1 percent against the U.S. dollar in July 2005 and untethered from a dollar peg to float within managed bands.
Chen Xingdong with BNP Paribas in Beijing agreed: 'It's very difficult for foreign investors to raise capital in China because of the yuan's appreciation.'
China is under pressure from the United States to let the currency rise faster to defuse rising political anger in Congress over America's record trade deficit with China.
Deng said China's balance-of-payments surplus, which exceeds 10 percent of national income, was likely to grow this year.
But he reaffirmed that the government would continue to permit only a gradual rate of climb in the yuan to avoid major shocks to the country's economy.
This policy had worked so far, as neither jobs nor exporters' profits had been hit too hard by the stronger yuan.
Given the outlook for further yuan gains, no normal commercial institution would raise yuan debt with a view to investing it overseas, said Zhong Wei, an economics professor with Beijing Normal University.
'No one will buy weak currency with strong currency,'he said. 'There's no reason to do this unless they're going to take the risk of yuan appreciation.'
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