„The National Development and Reform Commission will further increase the foreign financing ratio of foreign banks in China, based on the country’s need for economic growth and its financial situation …. In the meantime, the Commission will assist foreign banks in structuring optimize its external debt, rationalize its investment direction and improve its return, „the Commission said on its website.
Foreign banks are called upon to „make good use of their foreign debt, in line with China’s industrial policy and strategic planning, to increase their support to the real economy, and to promote industrial modernization and supply-side reform,“ the Commission said.
The rate of medium to long-term foreign debt of a foreign bank in China varies from several hundred million to several billion dollars a year. The funds are mainly long-term foreign currency funds, which have been taken up by their fully-fledged foreign-owned banks, joint ventures of foreign banks or their branches in China from their parent bank abroad, said persons familiar with the matter.
The latest regulation will allow foreign banks in China to replenish capital, which in turn will benefit their business expansion in the country, said an expert working for a foreign bank who refused to be named because he was not allowed to comment on the matter express.
In his opinion, the ultimate goal of policy is to support the real economy, the part of the economy that deals with the actual production of goods and services.
Foreign banks will decide whether or not to apply for a quota increase based on their business needs, said Samantha Xie, Head of Debt Capital Markets for China at JP Morgan.
„For a foreign bank in China, borrowing medium to long-term funds from its parent bank will improve liquidity. This can help the bank’s business on the assets side, but it is increasingly lending money in US dollars while lending in renminbi, so the return is not immediate, „Xie said.