China’s central bank has suspended applications from domestic companies to borrow yuan overseas for purposes other than trade financing, a move that may be intended to prevent hot money inflows, the Shanghai Securities News reported yesterday.
The People’s Bank of China (PBOC), which stopped accepting applications in the middle of last month, acted “amid the backdrop of current macro controls and prudent monetary policy,” the daily said, citing a notice from the central bank’s second monetary policy department.
Chinese Premier Wen Jiabao’s (溫家寶) campaign to cool inflation has included raising interest rates, curbing loans and controlling inflows of capital seeking higher returns in the world’s fastest-growing major economy. That has led to a credit crunch for many companies, with the All-China Federation of Industry and Commerce saying in June that smaller businesses face a worse cash shortage than during the 2008 financial crisis.
Lower interest rates and relatively loose credit environments overseas have led some companies to borrow outside of China to lower their financing costs, the newspaper said.
However, the Hong Kong Monetary Authority said the report was “incorrect” to say offshore yuan lending has been suspended and the information quoted in newspaper reports was the PBOC’s response to media inquiries, not a change in policy.
“According to our understanding with the PBOC, mainland companies have never been allowed to get direct yuan funding from banks outside China except for trade-related financing,” a spokeswoman for Hong Kong’s de facto central bank said in an e-mailed statement in response to a request for confirmation of the PBOC’s action.
She declined to be identified in line with the agency’s rules.
New yuan-denominated bank lending in the first six months of the year dropped 10 percent from the same period last year, while aggregate financing that includes lending, bonds and stock sales declined 385 billion yuan (US$60 billion), central bank data show.