HSBC has completed one of the first cross-border Renminbi (Rmb) loans between China and Taiwan.
Uni-President Group in Taiwan has loaned Rmb10mn to its subsidiary Kunshan President Enterprises Food Company in Jiangsu province, China, making use of a pilot scheme implemented by the city of Kunshan.
The finance will be disbursed through a master account, set up by HSBC China, into which the funds are transferred from overseas.
In August this year, the city of Kunshan was approved by national regulators to launch a number of pilot schemes to allow cross-border lending for companies with divisions both in the locality and in Taiwan.
“This scheme helps Uni-President better allocate the Rmb funds at the group level, provides the possibility for the onshore borrowers to access the funding in offshore markets with cheaper pricing and also support their business development and expansion in Kunshan,” a HSBC spokesperson explains to GTR.
The borrowing amount is dependent on the equity of the borrower’s parent company in its most recently-audited financial statement. Uni-President has set an upper limit of Rmb1.49bn that can be loaned.
HSBC will continue to be involved in these transactions, a spokesperson tells GTR: “We will continue to work closely with the regulators and actively participate in the various pilot schemes across mainland China. Via this, we believe we can use our network, technology, experience and good relationship with regulators to help our clients to catch up with the business opportunities in the reforming process in mainland China.”
Under a similar scheme, also in Kushan, HSBC has also completed its first cross-border Rmb remittance for an individual, helping an overseas resident transfer his Rmb income to his Rmb account in Taiwan.
One of the issues that has surrounded the internationalisation of the Rmb is the fear of capital flight.
According to one HSBC banker, China is looking to guard against potentially destabilising capital flows while internationalising the currency. This “rules out a ‘big bang’ of regulatory reform in favour of a more pragmatic and incremental approach based on pilot programmes”.
The scheme used by Uni-President is limited to Taiwanese companies registered and operating in Kunshan city only, the spokesperson explains, and the utilisation of the funds borrowed from overseas should be for the business development in Kunshan only.
“With such limited scope, we believe the risk of capital flight should be minimal,” the spokesperson said.