2015-03-11

Factors in Yuan Depreciation: Shift Away From HK Borrowing

One of the factors working to weaken the yuan is a shift in borrowing.
In recent years, Chinese firms from small garment manufacturers to bigger steel companies have increasingly been taking out inexpensive loans from banks in the former British colony and depositing the cash in higher-earning accounts at home.

Two factors buoyed such borrowing, which reached a record level of US$56 billion in 2013. Domestic interest rates were high compared with those in Hong Kong, which tracks U.S. interest rates, and the yuan was gaining relative to the Hong Kong dollar, with its peg to the U.S. currency.
Every time Chinese did this trade, they were pushing the yuan higher, bringing dollars into China and growing the nation's FX reserves. When they move in the other direction, they put depreciation pressure on the yuan.

Already, many companies are looking for offshore funding in euros or yen. The yuan has risen 23% against the euro since the beginning of last year, gaining 11% against the yen.

...Still, many Chinese companies are buying offshore assets, so borrowing outside mainland China, both in Hong Kong and elsewhere, should remain high for a while yet. Shanghai Jin Jiang International Hotels , one of the country’s biggest hotel groups, is seeking a €1.5 billion (US$1.7 billion) three-year loan to fund its purchase of France’s Louvre Hotels Group, a chain with 1,100 hotels globally, people familiar with the situation said. Jin Jiang declined to comment.

WSJ: Chinese Borrowers Shift Away From Hong Kong

No comments:

Post a Comment