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China sees 30b USD overseas lending on new rules
Published on: 2009-06-09
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June 9 (Bloomberg) -- China’s top currency regulator relaxed controls on overseas lending, estimating the measures could encourage as much as $30 billion of new financing for businesses to expand abroad.
 
Companies will be allowed to lend as much as 30 percent of the value of their total equity to units abroad, Sun Lujun, deputy director of the capital-account department at the State Administration of Foreign Exchange told a media briefing in Beijing today. The nation will let more firms provide such funding, including those not owned by the state.
 
“The aim of the rules is to provide follow-up funds for companies with overseas investments,” said Liu Guangxi, an inspector at SAFE’s capital-account department. “They had great difficulties in financing and have strong demand. We will support them to go global.”
 
China, with the world’s largest currency reserves at $1.95 trillion, has been urging its companies to expand outside the nation as part of its “go-global” campaign.
 
The government wants to diversify foreign-exchange investments to reduce the impact of any drop in the value of dollar-denominated debt. Chinese investors held $768 billion of Treasuries as of March 31.
 
“Companies overseas have weak capacity to source funds locally and it is especially hard for them when the international banks have reduced credit amid the crisis,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp, the country’s second-biggest lender. “Easing controls may also imply the government considers it an opportunity for companies to buy low.”
 
Acquisitions Spree
 
Overseas subsidiaries won’t be able to borrow more than the amount of their investment registered with SAFE after the rules take effect on Aug. 1, said Sun.
 
The $30 billion estimate for new loans used in stress tests assumes that a third of businesses abroad, which have $110 billion in registered investment, take advantage of the new rules, he said.
 
China Mobile Ltd., the nation’s biggest telephone company, in April agreed to buy 12 percent of Far EasTone Telecommunications Co. for about $530 million, the first investment by a Chinese state-owned company in Taiwan since a civil war ended six decades ago. Sichuan Tengzhong Heavy Industrial Machinery Co. this month agreed to acquire General Motors Corp.’s Hummer sport-utility vehicle brand.
 
The measures will also help increase capital outflows, which will help reduce the surplus in China’s balance of payments and ease the pressure for the yuan to appreciate, said Zhao.
 
The yuan appreciated 21 percent between July 2005, when the government allowed it to trade, and July 2008. China has prevented the currency from strengthening since then as the economy slowed. China’s currency traded at 6.8353 per dollar as of 2:26 p.m. in Shanghai, compared with 6.8371 yesterday.
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