China may relax debt curbs
By Eugene Tang (Bloomberg)
Updated: 2006-09-25 17:03

China's foreign-exchange regulator is considering revising rules to let certain companies borrow more abroad, in what could mark a relaxation of controls aimed at preventing speculation on a rising yuan.

The change would replace an absolute loan quota with a rolling credit limit that would be adjusted when a company repaid debt, said Xu Weigang, the deputy director of the regulatory division at the State Administration of Foreign Exchange.

Growth in China's foreign debt slowed to 13.6 percent last year, from 18.6 percent in 2004, after the government limited the amount that banks could borrow abroad. The curbs aimed to prevent speculators using loans to bet on a strengthening yuan, as China prepared to revalue the currency in July 2005.

Foreign-invested companies are allowed to borrow abroad up to a maximum determined by the difference between their registered capital and total permitted investment. Under current rules, that quota is not adjusted when a company repays existing debt.

The regulator is preparing to conduct studies on a rolling quota in some regions "to see if that's feasible," Xu said Friday.

China restricts overseas borrowing by companies to ward off financial risks. The government says such capital controls helped shield the economy from the worst of the Asian crisis in 1997 and 1998.

The nation's foreign exchange reserves grew to become the world's largest this year, reaching $954.5 billion at the end of July. China's foreign debt stood at $281 billion as of Dec. 31.


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