Chinese firms urged to borrow more cheaply offshore

SHANGHAI: China's top economic planner told Chinese firms with good credit to issue bonds in cheaper offshore markets to support domestic investment and major national projects.

The National Development and Reform Commission (NDRC) said on Wednesday the offshore borrowing should suppport initiatives such as the "one belt, one road," undertaking, the unified Beijing-Tianjian-Hebei region, and the Yangtze River belt project.

The planning agency also encouraged companies to take out commercial loans. Both bonds and loans should be of one year duration or longer, and could be denominated in either yuan or foreign currency.

The NDRC further specified that the current foreign debt issuance approval process would be cancelled.

Instead, firms need only apply to participate in a new registration system in advance and then report new issuances or borrowing to the NDRC within 10 working days.

The NDRC will continue, however, to set an overall annual limit for overseas debt financing, it said in a statement.

Even after five interest rate cuts in the past year, Chinese investment grade onshore corporate bond yields are generally significantly higher than those in major Organisation for Economic Cooperation and Development (OECD) markets.

With urban fixed asset investment growth sliding in August to a near 15-year low, Chinese policymakers are searching for ways to shore up growth.

Widening access to foreign debt markets could help some firms secure cheaper credit, but may not have much impact at a time when companies are nervously eyeing the potential for further falls in China's yuan.

On Aug 11, China surprised world markets by announcing a new currency-fixing mechanism and devaluing the yuan by nearly 3%.

Recently-released August data showed that Chinese banks sold a record 723.8 billion yuan (US$113.64 billion) in foreign currency last month. Chinese corporates have already borrowed significant sums in dollars over the past several years and a portion of the foreign currency sales likely reflect moves to reduce future currency risk. - Reuters