Chinese borrowers turn abroad as onshore credit tightens
Here you can find all the latest breaking forex and currency news about Chinese borrowers turn abroad as onshore credit tightens including currency analysis and forecasts, live foreign exchange rates, central bank interest rates, and currency trading strategies from experienced fx traders and forex platforms.
By Gabriel Wildau
SHANGHAI, Dec 18 (Reuters) - Cash-starved Chinese borrowers could drive up dollar interest rates next year, drawing in huge amounts of foreign capital as they wrestle with tighter money at home and an official campaign to reduce debt.
Offshore borrowing by Chinese corporates has already soared this year as firms struggle with tighter funding conditions in yuan markets. Both syndicated loans and bond sales by Chinese firms, mainly in U.S. dollars, have climbed significantly.
High-rated Chinese issuers sold offshore U.S. dollar bonds with coupons as low as 1.86 percent this year, considerably cheaper than the cost of domestic bank loans or bonds.
For junk-rated real estate developers, funding costs reached as high as 13.88 percent. For these issuers, domestic funding is often not available at all because of regulatory and capital constraints facing onshore lenders.
With China's central bank in recent weeks signalling an unofficial shift to tighter policy, that trend looks set to accelerate, analysts said.
Dollar interest rates in Asia will face upward pressure not just from the impact of reduced U.S. monetary stimulus as the Federal Reserve winds back a five-year quantitative easing strategy, but also from heavy demand for funding from Chinese borrowers.
'There will be a further increase in issuance by China and a crowding-out effect in regional bond markets,' said Mirza Baig, rates and FX strategist at BNP Paribas in Singapore.
BNP predicts Chinese offshore bond issuance will grow by another 15 percent in 2015.
China's domestic funding costs are rising as the government moves to loosen its tight grip on interest rates, which for years held borrowing costs at artificially low levels to support state industries.
The discount rate for one-year bank acceptance bills , viewed as a rough proxy for lending rates, was at 6.13 percent on Tuesday, up from 3.72 percent in late May.
Borrowing onshore has fallen as rates have risen. Growth in new onshore credit from all sources, including bank loans, bonds, and shadow bank lending, has slowed from 32 percent year-to-date through the first six months of this year to 14 percent through November, central bank data shows.
Offshore credit has partially filled the gap. U.S. dollar and other foreign currency bond sales by Chinese non-financial firms increased from $47 billion in 2012 to $99 billion through mid-December this year, according data from ThomsonOne, a deals database.
State-owned China State Shipbuilding Corp. raised $798 million from selling dollar bonds in Hong Kong earlier this month, even as regulators urge banks to reduce lending to industries with excess capacity.
Real estate developers comprise the largest group of mainland bond issuers, with large state-owned industrial firms also well represented.
The syndicated loans market has seen similar growth. Chinese borrowers drew in $54 billion this year compared to $20 billion last year, according to data from DealScan.
TIGHTER MONEY
Chinese policymakers hope that higher interest rates will support their push to deleverage the Chinese economy, which has experienced an unprecedented increase in corporate and government debt since the global financial crisis.
Though China's central bank has not changed its official commitment to 'prudent' monetary policy, it has used open market operations to tighten liquidity and guide short-term interest rates higher.
The benchmark seven-day bond repurchase rate, which tracks the rate that banks charge for lending to each other, has averaged 4.02 percent in 2013, more than 50 basis points above the 2012 average. Since the beginning of October the rate has averaged 4.43 percent.
Tighter liquidity has led to a slowdown in shadow bank activity, as banks often rely on borrowing from money markets to fund their off-balance-sheet loans.
'Even though the shadow banking system is unregulated, the central bank is still able to exert control over its growth by adjusting the liquidity profile in the interbank market,' Michael Werner, China banks analyst for Bernstein Research in Hong Kong, wrote in a note to clients.
New regulation is also cramping borrowers' access to onshore funding. The banking regulator last month launched a fresh salvo in its regulatory campaign against banks' use complex off-balance-sheet structures to evade credit restrictions.
That will cut off financing for weaker firms, which have been shut out from normal bank loans for several years but relied on shadow loans to stay liquid.
(Additional reporting by Vidya Ranganathan in Singapore; Editing by Eric Meijer) Keywords: CHINA FINANCE/OFFSHORE
([email protected])(+86 21 6104-1783)(Reuters Messaging: [email protected])
COPYRIGHT
Copyright Thomson Reuters 2013. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The article above is about breaking forex and currency news regarding Chinese borrowers turn abroad as onshore credit tightens, if you have any question about it. Please contact us by using the link below. Thanks for your patience.
- Japanese Yen Gains, Nikkei Falls as BOJ Leaves Policy Unchanged
- Chinese Business Sentiment Contracts for the First Time in 4 Months
- Dismal UK Retail Sales to Spur Another Test of GBP/USD Resilience
- Forex-Webinar:-FOMC-Minutes-Reinforce-Hike-Forecast
- Trading Video: Dollar Fails to Rally on Hawkish FOMC, Equities Rally
- Among Top Themes, Where is the Risk Most Potent: Fed Hike, China, EM?
- EUR/USD Technical Analysis: Looking to Short on Bounce
- US Dollar Declines as FOMC Minutes Bring Nothing New to the Table
- US DOLLAR Technical Analysis: USD Holds Support on FOMC Minutes
- WTI Crude Oil Price Forecast: What Now That $40bbl Broke?
- Fingertrp Scalping with James Stanley (Using Tradingview Charts)
- EUR/USD Risks Fresh Monthly Lows on Hawkish FOMC Minutes
- Analyst Pick - Kiwi & CAD in Focus
- Price & Time: USD/CAD ? It?s Showtime
- GBP/USD Ranges Ahead of FOMC Minutes
- President Xi Warns That China Faces Considerable Downward Pressure
- FOMC Minutes Later Today - USD Set for October 28 Redux
- Silver Price Is Targeting Its Yearly Low
- FTSE 100: Commodity Markets Wants to See The FTSE 100 at 6040
- DAX 30: Momentum Slows Down, FOMC Minutes on Tap
- US Dollar May Extend Gains as Fed Minutes Foreshadow Rate Hike
- Copper Surplus Faces Falling Premiums; Gold Slides before Fed Minutes
- China Real Estate Market Recovery Slows in October
- Traders Not as Confident of Fed Hike as Markets, Economists
- EUR/GBP Technical Analysis: Euro Drops to 3-Month Low
- Dollar Unmoved After China Treasury Holdings Hit a 7 Month Low
- Can Dollar Climb Continue After FOMC Forecast Shift?
- Dollar’s CPI Rally Lacking, Stall in Risk Raises Yen Crosses Appeal
- NZD/USD Technical Analysis: Short Trade Activated Sub-0.65
- Will the DAX Crack or Cower from Resistance?