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Beijing has raised the limit on banks’ overseas lending – a move that analysts say will support Chinese firms in outbound investment expansions while helping to stabilise the yuan.
Regulators raised the overseas-loan leverage ratio for foreign banks in China and their joint ventures with Chinese lenders from 0.5 to 1.5 on Wednesday, according to a statement published by the central bank and the foreign exchange regulator.
In a separate statement, the regulators said that the new rules would better address the financing needs of firms expanding abroad, as overseas-loan volumes have grown steadily and some banks have raised concerns about lending limits.
“The demand should be strong as outward FDI (foreign direct investment) has so far been popular to mitigate the impact from lower nominal growth in China,” said Gary Ng, a senior economist at Natixis Corporate and Investment Bank.
He said that, in addition to supporting Chinese firms in going global, the rules would also help “expand geopolitical influence through financing”.
A growing number of Chinese firms have looked to overseas markets for new growth opportunities in recent years, as they continue to face sluggish demand and intense competition at home.
But overseas lending had likely been reaching its limits at some institutions, noted Shao Yu, chief economist with the Sci-tech Innovation Centre at Fudan University’s School of Management.
