Banks get green light for 2b yuan in cross-border loans for Qianhai

Cross-border deals signal relaxation of Beijing's tight controls and offer major opportunities in bid to create 'Manhattan of Pearl River Delta'

PUBLISHED : Monday, 28 January, 2013, 9:48am
UPDATED : Monday, 30 May, 2016, 5:01pm

Fifteen banks in Hong Kong were granted permission yesterday to offer a combined 2 billion yuan (HK$2.49 billion) in loans to companies in Qianhai to help develop the area into the "Manhattan of the Pearl River Delta".

This is the first time the city's lenders are being allowed to offer cross-border loans in yuan.

It is seen as a relaxation of the mainland's tight capital controls and presents a business opportunity to Hong Kong lenders.

In June, the National Development and Reform Commission identified Qianhai - a 15 square kilometre special zone west of Shenzhen - as a testing ground for the introduction of freer convertibility of the yuan.

Hong Kong banks can offer a wider variety of loans to mainland firms.

And while mainland banks must adhere to official lending rates, the Qianhai scheme allows loan rates to be negotiated between Hong Kong lenders and Qianhai borrowers. Analysts said this flexibility could also be seen as an experiment with the mainland's rate reforms.

The loan plan is the first major milestone to become a reality in the Qianhai development plan. Previous measures failed to gain Beijing's approval.

Since 2010, the Shenzhen government has aspired to turn Qianhai into the "Manhattan of the Pearl River Delta", with a target for the zone's gross domestic product of 150 billion yuan by 2020. But it was only last year that Beijing confirmed the zone's role as a testing ground for yuan convertibility.

The Shenzhen municipal government announced yesterday a list of banks that had sent senior executives to the city to sign loan agreements with Qianhai enterprises for 26 projects to support development and construction.

The 15 banks include note-issuing banks HSBC, Standard Chartered and Bank of China (Hong Kong), as well as Hong Kong arms of mainland lenders such as Industrial and Commercial Bank of China and China Construction Bank, and Hong Kong-owned banks such as Bank of East Asia and Wing Lung Bank. Hang Seng Bank executive director Andrew Fung Hau-chung said that under the scheme, a bilateral agreement is signed between a bank and a Qianhai enterprise, which negotiate the structure, term and interest rate of the loan.

"The interest rate and term would be different on a case-by- case basis, based on the credit quality and business nature of the enterprise," said Fung.

"The Qianhai enterprise would be interested in borrowing from Hong Kong banks only if they can offer an interest rate better than mainland lenders."

Financial services sector legislator Christopher Cheung Wah-fung said: "At 2 billion yuan, the amount is small, but this is the beginning of big business for Hong Kong financial firms. We hope higher loan amounts will be allowed in the future.

"We also want other financial firms, such as stockbrokers, to be able to do business in Qianhai."

Gao Yingxin, deputy chief executive of Bank of China (Hong Kong), said his bank had signed yuan loans with five enterprises.

He described the approval as a "major milestone in the development of Hong Kong yuan business, creating a win-win situation for Hong Kong and Qianhai."