Foreign banks cleared for client bond trade

PUBLISHED : Saturday, 06 December, 2008, 12:00am
UPDATED : Saturday, 06 December, 2008, 12:00am

China crept forward on the road towards full opening of its financial industry by allowing foreign incorporated banks to trade bonds for their clients in the interbank market.

The moves follows a high-level economic meeting between China and the United States that was clouded with uncertainty.

Beijing also eased its restrictions on overseas borrowing by foreign-owned lenders operating on the mainland. That will allow them to ignore foreign currency debt quotas and 'increase their liquidity through foreign currency loans from overseas affiliates on temporary basis', said a statement released yesterday after the two-day Strategic Economic Dialogue in the capital.

Xu Mingqi, a professor at the Shanghai Academy of Social Science, said: 'The outcomes on the financial front are small yet realistic given the fact that the US administration is now in a transitional period.'

The forum began in 2006 and covers areas including environment protection, bilateral trade and financial market access.

Previous talks have helped expand the portfolio of foreign-invested brokerages on the mainland, increase the amount of foreign investment allowed in the Chinese stock market and aid Chinese banks' business in the US.

There were 21 incorporated foreign banks among the 60-plus foreign-owned lenders on the mainland by the end of June. They are already trading through their own accounts in the interbank bond market.

The annual turnover of the interbank bond market stood at 62.6 trillion yuan (HK$70.57 trillion), according to banking authorities.

The overseas credit easing measure was a response to the recent liquidity problem afflicting foreign-owned banks on the mainland, Mr Xu said.

Foreign lenders reported difficulties in borrowing from their Chinese counterparts in the weeks after the financial turmoil worsened in September.

However, Mr Xu said China still has concerns about how much flexibility to give foreign banks.

'For a long time, we feared foreign currency debt by mainland-based foreign lenders would bolster short-term external debt on our capital account [and] jeopardise the stability of the yuan,' he said. 'But the Chinese authorities still have leeway to reinforce control when necessary.'