China raises foreign debt quota for foreign banks

Thu Mar 29, 2012 2:17am EDT
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By Zhou Xin and Lucy Hornby

BEIJING (Reuters) - China has bumped up the annual long-term foreign debt quota allocated to foreign banks to $24 billion, allowing them to bring more money into the country as growth slows in the world's No.2 economy.

The National Development and Reform Commission, the powerful Chinese planning agency that announced the quota increase, also said it would launch a pilot project for increasing the debt quota.

Participants in that project include HSBC Holdings Plc (HSBA.L: Quote) (0005.HK: Quote), Deutsche Bank AG (DBKGn.DE: Quote), JP Morgan (JPM.N: Quote), Citigroup (C.N: Quote), Sumitomo Mitsui Banking Corp and Bank of East Asia (0023.HK: Quote), the regulator said in a statement published on its website.

Because of China's capital account restrictions, overseas banks operating have often struggled to supply their local Chinese operations with enough capital to meet demand for loans and investment.

The move could also help China cope with the slower flow of capital into its economy. Inbound foreign direct investment, a key indicator for long-term capital inflows, shrank in February from a year earlier, marking the fourth straight fall.

"The number $24 billion is not big, but it shows China is taking measures to manage capital inflow slowdown," said Liu Junyu, an economist with China Merchants Bank in Shenzhen.

"However, it should be noted that there's no evidence to show that China will see persistent capital outflows," Liu said.

BORROWING IN YUAN   Continued...

HSBC logos are displayed inside an office tower in Hong Kong February 27, 2012. REUTERS/Bobby Yip