China to use yuan, credit measures to help exporters

BEIJING, June 11 Wed Jun 11, 2014 10:28am EDT

BEIJING, June 11 (Reuters) - China has promised its exporters a suite of currency and credit measures that include cheaper loans and more tools to reduce foreign exchange risks to help them combat sluggish sales.

The broad sweep of policy steps announced by the Chinese central bank on Wednesday is aimed at supporting China's cooling export sector, a pivotal employer in the country but which has seen average monthly growth fall by two-thirds since 2007.

This is the second time in two months that China has given a hand to its struggling exporters. Last month, the government offered tax breaks, credit insurance and other benefits to the sector, some of which overlap with latest announcement.

Most of the measures unveiled on Wednesday are intended to lower companies' costs, be it borrowing costs, or transaction and financial costs incurred when dealing with foreign exchange.

To reduce firms' cost of financing, the People's Bank of China said it would support any qualified, non-financial company that raises cash by selling bonds, bills or notes.

The Export-Import Bank of China, a non-commercial bank whose goal is to reinforce state policy, will also increase loans disbursed at favourable rates to Chinese exporters with business overseas.

The procedures for settling cross-border deals denominated in yuan and which pertain either to trade or direct outbound investment will also be simplified, the central bank said.

And given China's long-term goal of gradually reducing its interference with the yuan's value such that it is largely decided by financial markets, authorities will attempt to help companies cope with rising foreign exchange volatility.

More currency forwards, futures and options will be developed, and the bar faced by banks when dealing with foreign exchange derivatives will be lowered, the central bank said.

At the same time, it reiterated its policy that it will slowly increase the extent to which the yuan can fluctuate according to market demand and supply, whilst ensuring that it stays at a "basically stable" level.

For companies that wish to expand abroad, the central bank also pledged assistance. More financial services will be given to companies involved in overseas mergers and acquisitions, such as loans or syndicated loans.

More yuan-denominated funds that specialise in overseas investments and merger and acquisition deals will also be created, the central bank said. (Reporting by Koh Gui Qing; Editing by Toby Chopra)

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