China To Lower Ceiling On Foreign Borrowing
SHANGHAI, China -- China moved to reduce financial firms' offshore foreign-currency borrowings in the latest attempt to address the country's lopsided balance of payments and further develop domestic financial markets.
China's foreign-exchange regulator said it will lower the ceiling on financial companies' short-term, foreign-currency debt overseas, and encourage them to borrow foreign currency in the domestic market.
The ceiling on local banks' short-term, foreign-currency debt will be cut by 70% this year compared with 2006, said the State Administration of Foreign Exchange, or SAFE. It added China will lower the short-term debt ceiling for nonbank institutions and foreign banks by 40% this year from last year.
The change, which takes effect April 1, should decrease the amount of foreign currency brought into China that is exchanged for yuan and ultimately help the country have a less one-sided foreign-exchange market.
The measure could boost demand for foreign currencies against the yuan in China's domestic market, but not enough to significantly reduce the upward pressure on the yuan.
The move follows comments by Premier Wen Jiabao and People's Bank of China Gov. Zhou Xiaochuan in recent days that closely link the yuan's exchange rate to China's balance of payments. SAFE's statement comes days before U.S. Treasury Secretary Henry Paulson makes his first trip of the year to China. He is expected to press for more liberalization of China's financial system in meetings with Vice Premier Wu Yi in Beijing Wednesday and in a speech the following day at the Shanghai Futures Exchange.
China's huge trade surplus, which surged 74% in 2006 to a record $177.47 billion, as well as large capital inflows, have contributed to flush liquidity in the country, driving loan and investment growth.
Yen Continues Ascent
The yen didn't disappoint Friday, making its final move of the week an imposing one.
The dollar, continuing its downward tumble against the Japanese currency, lost close to a full yen during the global trading session as investors continued to unwind their "carry" positions.
Late in New York, the dollar was changing hands at 116.85 yen versus 117.59 yen late Thursday, while the euro stood at $1.3194 from $1.3186. The euro traded at 154.16 yen versus 155.00 yen late Thursday. The dollar was at 1.216 Swiss francs versus 1.2210 francs, while sterling was at $1.9435 versus $1.9589.
"The dollar remained on the back foot going into the weekend," said Naomi Fink, currency strategist at BNP Paribas, and "the yen continued to outperform, against high-yielders in particular."
From: Wall Street Journal, By JANE LANHEE LEE and WANG MING
Date: March 3, 2007
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