China Raises Overseas Lending Limit to Curb Yuan’s Strength
What’s new: Chinese regulators have raised the upper limit on outstanding overseas loans by domestic firms for the first time, in a move that could ease appreciation pressure on the yuan.
China’s central bank and the top foreign exchange regulator on Tuesday announced (link in Chinese) a decision to raise a key parameter on domestic nonfinancial firms’ overseas lending to 0.5 from 0.3, giving them more room to lend money to their overseas units, including wholly owned subsidiaries and other companies in which they hold stakes.
The move may allow domestic firms to have more money used overseas and less money sent back home, reducing capital inflows to China.
What’s the background: Cross-border capital flows are a key factor affecting the exchange rate of the yuan.
As confidence in China’s economy has improved and the government has further opened up the capital markets, China has seen more inflows of overseas capital investing in its markets, adding to appreciation pressure on the yuan, which has rallied over the past few months.
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