China curbs banks' foreign borrowing

BEIJING - CHINA has cut the amount banks can borrow overseas, to curb risks and stem foreign-currency inflows that have put pressure on the yuan to appreciate.

Chinese banks' quotas for short-term foreign debt will be reduced to 45 per cent of last year's level by June 30 and then to 30 per cent by March next year, the State Administration of Foreign Exchange said on its website yesterday. For foreign banks, the reduction is to 85 per cent and then 60 per cent.

'Hot money has been flooding into the country because investors are betting on a yuan appreciation,' said China International Capital chief economist Ha Jimin in Beijing. 'The new policies are aimed at supervising and better managing the short-term foreign debt inflows.' China has the world's biggest foreign-currency reserves at US$1 trillion (S$1.5 trillion) and is trying to prevent the overheating of the economy.

Short-term foreign debt was US$169 billion as of September last year. That is about 4 per cent of the 35.3 trillion yuan (S$6.97 trillion) deposits held by the nation's financial institutions at the end of January.

The measures 'may hit two birds with one stone' by reducing capital inflows and helping to develop the domestic money markets, said Lehman Brothers economist Sun Mingchun.

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