CNH Tracker-Red tape hinders Qianhai cross-border yuan loan scheme
By Michelle Chen HONG KONG, Aug 15 (Reuters) - Cross-border yuan borrowing from Shenzhen's Qianhai economic zone has been quiet after an initial surge as restrictions on how loans could be used and unclear policy details throttled demand. This slower-than-expected growth poses a challenge for the business zone which has ambitions to be a test bed for fuller capital account convertibility of the yuan -- beating the likes of Shanghai and other major cities. Even as property prices surged in and around the area, and local governments wooed banks and companies in Hong Kong to set up shop there, doubts arose on how viable Qianhai would be in the long term. Fifteen banks, including Bank of China Hong Kong, Standard Chartered Bank and HSBC , agreed to provide some 2 billion yuan ($327 million) loans for 26 projects in Qianhai in January. From this initial sum, growth has been slow. By the end of May, only about 5.25 billion yuan of loans had been agreed under the scheme, an official of the Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone said in June. This slow growth was despite many incentives including a handy 200 basis point or more discount for companies if they borrow from Hong Kong lenders. The pilot programme allows companies incorporated in Qianhai to borrow money from banks in Hong Kong with interest rates determined by the parties, but the loans must be used for construction and business in the 15-square-kilometre economic zone. Market participants had expected the scheme to be attractive, given its lower funding costs. But until companies learn what Qianhai's full benefits might be, the project will not be able to take off. "The tax advantage is the biggest incentive for corporates, which are waiting to see whether they can enjoy the favourable income tax rate of 15 percent," said Becky Liu, a strategist at Standard Chartered Bank. A list of industries and companies to be granted the preferential tax rate was set to come out late last year, but it is still being examined by China's Ministry of Finance. In addition to the tax benefits, businesses opening in Qianhai also need to be able to use the funds they can borrow there beyond the economic zone, which is not currently permitted. "Infrastructure construction in Qianhai is the first stage for loans and after that, you'll have to allow broader use of these loans to facilitate operations and trade," said a senior bank in Hong Kong who is involved in Qianhai business. "After all, Qianhai is a very small area in Shenzhen, just like Central in Hong Kong. A company can set up an office there, but its factories in other mainland cities also need financing." WEEK IN REVIEW: * Citibank (China) said it became the first international bank to launch a paperless processing solution for RMB cross-border settlement and completed the first settlement for Zhejiang Supor. It not only reduced cost, but also lowered operational risk from paper documents. * Income Partners Asset Management (HK) said on Tuesday it had received the RMB Qualified Foreign Institutional Investors (RQFII) asset management license from the China Securities Regulatory Commission (CSRC). Income Partners was one of the first asset managers to launch offshore yuan bond funds in 2010. * A Reuters poll last week showed that the Chinese yuan is likely to rise to 6.07 over the next 12 months, unchanged from the July poll. * Standard Chartered said on Thursday it had formed an RMB Solutions group to help clients benefit from the internationalisation of the Chinese currency. CHART OF THE WEEK: Dim sum bond issuance with different maturity terms: link.reuters.com/hap42v LEAGUE TABLES Book runner: Proceeds (RMB mln): # of issues: 1.HSBC 36,744.4 106 2.Standard Chartered 19,768.4 59 3.BNP Paribas SA 16,271.3 52 4.ICBC 3,526.7 10 5.DBS Group 2,987.7 9 * Thomson Reuters data as of Aug 15. RECENT STORIES: CNH Tracker-Fast yuan deposit growth may have run its course More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS Offshore yuan bonds THOMSON REUTERS SPEED GUIDES ($1 = 6.1196 Chinese yuan) (Editing by Eric Meijer)
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