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China Issues Detailed Rules for Cross-Border Yuan-Loan Trial

China issued rules for cross-border yuan loans in a trial area near Hong Kong, as the government of the world’s second-biggest economy moves to gradually open up its capital account and allow freer use of its currency.

The People’s Bank of China authorized its local office in Shenzhen to implement rules letting companies in the southern city’s Qianhai district borrow yuan from banks in Hong Kong, according to a statement posted on the branch website yesterday.

The commencement of cross-border yuan-loan operations in Qianhai will have “far-reaching” effects on the development of zone as well as on the offshore yuan market in Hong Kong, according to the statement.

China is seeking to develop Qianhai, a 15-square kilometer zone on Shenzhen’s west side, into a financial services hub. Companies there will be encouraged to sell yuan-denominated bonds in Hong Kong and to experiment with cross-border loans in the Chinese currency, the National Development and Reform Commission said in June.

The creation of the Qianhai zone is a major breakthrough because it will give mainland companies access to cheaper capital in Hong Kong, Xiao Yafei, director-general of Shenzhen’s office of financial development service, said in June. Qianhai may serve as a bridge between the onshore yuan hub in Shanghai and the offshore center in Hong Kong, Xiao said.

The interest rates and maturities of cross-border yuan loans will be decided by banks and borrowers, the central bank said in yesterday’s statement. Cross-border yuan loans taken out in Qianhai should be used locally, it said.

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