Offshore yuan lending starts in Shenzhen

THE first offshore yuan lending program in Shenzhen's Qianhai started yesterday when 15 banks in Hong Kong agreed to lend 2 billion yuan (US$321 million) to companies registered in the area.

The program is set to accelerate capital account opening and interest rate liberalization on the Chinese mainland, and will deepen competition between Shenzhen and Shanghai for the cross-border yuan business, economists said.

The Hong Kong units of banks, including the Bank of China, Standard Chartered Bank, and HSBC, are allowed to independently set tenors and interest rates on the loans for 19 projects in Qianhai, the Shenzhen branch of the People's Bank of China said in a statement yesterday.

Dariusz Kowalczyk, senior economist of Credit Agricole CIB, said the move is a major development in liberalizing interest rates as companies can for the first time set their own lending rates disregarding the PBOC's official rates.

The first batch of projects to get the offshore loans includes a supply chain of telecommunication firm ZTE, an information platform of Tencent, and several local transaction systems for financial products.

Lim Cheng Tech, CEO of Standard Chartered Bank China, said the move marks the further opening of the mainland's capital account, and will fasten the development of the offshore yuan market and cross-border capital flow.

"Opening up offshore yuan lending in Qianhai is an important move in exploring the flow-back mechanism for the yuan," Lim said. "It is a landmark step in the yuan's internationalization."

At the end of last year, 302 companies and organizations with a total registered capital of 37.3 billion yuan were registered in Qianhai.

Qianhai, located near Hong Kong, is seen competing with Shanghai which is striving to become an international financial center on par with London and New York.