Currencies

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DJ China Regulator Issues Notice On Foreign Bk FX Borrowing
02/21/2005
Dow Jones News Services
(Copyright © 2005 Dow Jones & Company, Inc.)

SHANGHAI (Dow Jones)--China's foreign exchange regulator has outlined the process for foreign banks to apply for quotas for their short-term borrowing in foreign currency this year.

The quota system is aimed at improving the regulator's oversight of foreign exchange borrowing of foreign banks in China, the State Administration of Foreign Exchange said in a notice posted on its Web Site late Monday.

"These quotas for short-term foreign debt of foreign banks should meet the needs of foreign banks for their normal business development and also effectively control the total size of short-term foreign debt of foreign banks," the notice said.

In June 2004, regulators said they would cap the amount of U.S. dollar borrowing overseas by branches of foreign banks operating in China. The regulator also signaled that proceeds of U.S. dollar loans in China can only be used for legitimate goods trade.

Borrowing in U.S. dollars has been one way for speculators to bet that China's authorities will allow the yuan to rise in value against the U.S. currency.

China's yuan is only fully convertible on the trade account but even then daily trading is kept in a very narrow band relative to the dollar. On the capital account, the country maintains strict controls on outflows of yuan to prevent an exodus from its financial system to more stable markets offshore.

According to Monday's statement, foreign banks should submit their quota applications to SAFE within ten working days of receiving notices from the regulator. If the banks don't respond in this period, SAFE will assign the banks the same quota they had in 2004.

In determining the quotas, SAFE said its branches should consider the 2005 business development plans of foreign banks, and the balance of foreign exchange loans of foreign banks in the previous two years, especially the second half of 2004.