Yuan outflow limit to hit smaller Chinese firms but seen temporary

The Chinese central bank’s move to limit and tighten scrutiny on yuan outflows via lending to offshore entities may make it more difficult for less established mainland firms to buy offices or expand in Hong Kong and other countries, analysts said.

Some analysts, however, expect the policy to be relaxed after the yuan value, which has depreciated substantially against the US dollar, stabilises.

“We believe that this move was issued primarily to stabilise the yuan ... it is probably temporary and may be relaxed once it stabilises,” said Thomas Dillenseger, senior director of Alvarez & Marsal, a business consultancy firm.

But the stringent approval process will also cause significant delays to yuan fund transfers, he added.

The People’s Bank of China, China’s central bank, on Tuesday asked banks to restrict non-financial mainland firms’ yuan fund transfers in the form of lendings to offshore entities. Among the new norms are the criteria that lenders must have been registered for at least a year and can only lend to overseas companies in which they have a shareholding, subject to a cap equivalent to 30 per cent of their shareholders’ equity. In addition, the loans also need to be supported by valid commercial reasons and must be repaid as per schedule.

Bureaucratic hurdles have already caused a temporary suspension in some inter-company yuan fund transfers of at least one firm contacted by the Post, pending more paper work.

“We can’t transfer money, either in yuan or in US dollar, to our subsidiaries overseas at this moment,” said a staffer at a large state-owned firm who is responsible for cross border transactions, who asked not to be named since she is not authorised to speak to the media.