New yuan channels to widen funding sources (China Daily)

Cross-border loan services to help lower finance costs for more domestic, overseas companies

Officials said the launch last week of another trial cross-border yuan loan service agreement, signed between Fujian province and Taiwan, will go a long way to widen funding sources and lower finance costs for both domestic and overseas companies in the region.

The government is offering the service to firms operating in a newly established free trade zone in the province, allowing companies and projects registered in Xiamen to borrow yuan from institutions in Taiwan.

Companies registered in the Nansha and Hengqin new areas of Guangdong free trade zone are already allowed to borrow yuan from banks in Hong Kong and Macao.

Twelve Xiamen companies immediately signed cooperative intent agreements on cross-border yuan loans worth a total of 1.17 billion yuan ($189 million) with banks from Taiwan and Xiamen, at lending rates of around 4 percent, nearly 20 percent lower than average financing costs.

Li Weiping, manager of the People’s Bank of China’s Xiamen central sub-branch, said: “The service will expand financing channels overseas and reduce costs.

It will not only give strong support to the real economy in Xiamen but also encourage the flow of yuan from Taiwan to the Chinese mainland and the development of the offshore yuan market in Taiwan.”

Li also said the new investment channel would bring banks in Xiamen closer to their Taiwan counterparts, increase the intermediary business income of local banks, and accelerate the opening up of the province’s financial services sector, which is likely to play a key role in funding projects within the country’s Belt and Road Initiative.

The Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives were proposed by President Xi Jinping in 2013 to improve the infrastructure connectivity along the ancient trading routes.

As a major city on the eastern coast, Xiamen is expected to serve as a main hub for the maritime route.

Earlier in July, the government also launched a trial program for cross-border loan services for mainland companies in the Nansha and Hengqin new areas of Guangdong province, to allow them access to yuan financing from Hong Kong and Macao.

The areas host companies from a vast range of industries, which have a huge demand for capital.

Those in Hengqin alone are believed to be seeking more than 400 billion yuan in funding, which cannot be satisfied by domestic bank loans alone.

Zong Liang, deputy director of the Bank of China Ltd’s Institute of International Finance, said the new cross-border arrangements will allow mainland companies to cut their financing costs by around 2 percentage points on average, by borrowing from banks in Hong Kong, Macao and Taiwan.

“Such cross-border yuan services will encourage wider use of the yuan as an investment vehicle and for financing, and will become a crucial part of the internationalization of the yuan,” he said.

Bank of China’s Guangdong branch, Macao branch, and Bank of China (Hong Kong) Ltd, immediately extended medium-to long-term loans worth 500 million yuan to Guangzhou Port Co Ltd, for instance, when the arrangement was launched on July 13.

Li Wenfang in Guangzhou contributed to this story.