Yuan Loans Market to Revive Chinese Currency as Pilot Programs are Introduced
The yuan loans market in Hong Kong is planning to revive the Chinese currency that is trapped in what experts say the longest downtrend since 2005 revaluation and while the mainland rolls out pilot programs that is said to boost cross border lending activities. While corporate avoided yuan loans, the redbacks slowly appreciated for years which made repayments of yuan debt more expensive as the loans matured.
The continuing weakness of the yuan and the easing policy proved to be a golden opportunity for all offshore yuan loan market to take off. And the yuan loans market in Hong Kong market took off once the territory yuan clearing agreement was modified. Outstanding yuan loans were at 123 billion yuan by the end of February as reported by the Hong Kong Monetary Authority. Although the loan was small compared to the dim sum bond market which reached 704 billion yuan by the end of April including certificates of deposits.
But the fall of the currency this year will likely bring new life to the loans market as the yuan has entered a weakened stage since the beginning of this year as the central bank took actions in getting money by betting on a one way appreciation in the Chinese currency.
Details on getting businesses in the free trade zone in Shanghai was recently unveiled by the Central Government as regulators announced its easing of constraints on cross border guarantees. Furthermore individuals and institutions found in the free trade zone in Shanghai will be allowed to create a special tagged bank accounts that is said to create a opening in China’s capital account for the free trade zone.