Guidelines issued for overseas yuan loans
December 5, 2016 Category Finance, Weekly
The People’s Bank of China (PBOC) has drawn up new guidelines to strengthen inspections of domestic companies that make yuan loans overseas. Lenders must register with local foreign exchange regulatory bodies in China before issuing loans overseas, and the amount of the loans should not exceed 30% of the net assets of the lender. It is the first time that the central bank has set up a ceiling amount for yuan-denominated loans that lenders are allowed to issue overseas. Issuing loans overseas is a rather simple way to move money out of the country. A Morgan Stanley report said that cross-border yuan flows picked up strongly to an average of USD28 billion per month through October this year, accounting for half of the total outflows, in contrast with declining offshore yuan deposits. That means that yuan flowing to foreign countries have been converted to foreign currencies rather than promoting the use of yuan offshore, the report said. Robin Xing, Chief China Economist with Morgan Stanley, said he foresees regulatory bodies introducing more measures to regulate capital outflows if the United States Federal Reserve (FED) increases rates, keeping up capital outflow pressures.
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