Reuters: US Dollar Report: CNH Tracker-Pilot quota system for moving yuan offshore gathers traction

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CNH Tracker-Pilot quota system for moving yuan offshore gathers traction May 23rd 2013, 04:56 Thu May 23, 2013 12:56am EDT By Saikat Chatterjee HONG KONG, May 23 (Reuters) - A pilot quota system that allows companies operating in China to freely transfer some of their yuan profits offshore has gathered some traction in recent months and bankers expect more firms to seek approvals to participate. So far only a handful of multinationals - including General Electric, Ford Motor Co, Danone, Schneider Electric and Moog Inc - have been granted quotas, operated through authorised transaction banks. The relaxation of rules, seen as one of China's incremental steps towards capital account convertibility for the yuan, gives firms more flexibility to hedge foreign exchange risk, put money to work by investing in short-dated instruments, or pay-off short term debt. "We expect more approvals to be given in the coming months," said Michael Vrontamitis, head of product management for Asia, transaction banking at Standard Chartered Bank, one of a handful of transaction banks authorised to offer the quotas. But like with all pilot schemes from China, this one too has a long way to go before the mechanism gets smoother, as negotiating the thicket of rules needed to transfer yuan funds across the border varies from province to province and can take anywhere between 4-6 months. S. Subramanian, financial director Asia-Pacific at Moog, a maker of precision motion control products, said that earlier the main route for bringing yuan earnings out of China had been by remitting them to shareholders via dividends. "But now we can take the yuan out of China and inject back into our operations on the mainland when we need to without having to take more approvals," he told Reuters. "It improves our ability to do business greatly inside China." The pilot scheme was implemented first for companies in Shanghai last September, but it has since been extended to companies operating from other cities like Shenzhen and Guangzhou. China has given priority to making the switch to capital account convertibility for the yuan. Premier Li Keqiang told a meeting of the State Council, China's cabinet, that the government would produce a detailed "operational plan" later this year, though he did not offer a timeline for convertibility. Apart from some small restrictions, China's yuan is largely convertible on the current account. In recent weeks, China's foreign exchange regulator has simplified rules for governing foreign direct investment, clamped down on speculative capital flows masked as trade remittances and doled out fresh quotas under its twin investment schemes to buy onshore stocks and bonds. WEEK IN REVIEW: * China's foreign exchange regulator will simplify regulation of foreign currency transactions for companies operating in China's special economic zones. Companies working within Chinese special economic zones would be able to take legal profits derived from exports out of the country, said the State Administration of Foreign Exchange (SAFE) in a statement on its website. * In a growing crackdown on the bond market, China's central bank will require underwriters to price new bond issues close to those traded in the secondary market. The mainly technical arrangements also include a ban on a common practice in which underwriters sell bonds to some sub-underwriters on the first day of trading at preferential prices. * In keeping with a trend in recent weeks, the People's Bank of China continued to fix the yuan's midpoint higher in recent weeks to another record high of 6.1904 on Wednesday. Thursday's fixing was slightly weaker at 6.1947, reflecting the dollar's gains in global markets. * Hopes of trading in yuan-denominated commodity contracts have dimmed greatly after the Hong Kong Mercantile Exchange, operator of an electronic platform for trading in gold and silver futures gave up its license to provide trading services. Albert Helmig, its president said in March that the bourse would offer yuan-settled gold and copper futures by July and other industrial metals over the next 12 months. CHART OF THE WEEK: Attractive dim sum:Offshore bonds denominated in the Chinese currency have generally outperformed their other local currency counterparts so far this year thanks to a stronger renminbi. That has helped demand for new issuers. RECENT STORIES: CNH Tracker-Stronger currency enhances appetite for dim sumChina eases forex rules in special economic zones 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 THOMSON REUTERS SPEED GUIDES Link this Share this Digg this Email Reprints

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