Chinese Companies Can Enter Foreign Exchange Markets
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The People’s Bank of China said it will allow the nation’s biggest companies to enter the foreign exchange market for the first time and that the dollar, euro, and yen will be the major currencies used to value the yuan.
Businesses that import and export at least $2 billion a year, such as China Petroleum & Chemical, Asia’s largest oil refiner, will be able to trade directly with banks in China’s foreign exchange market. Previously, it has been limited to banks and other financial companies.
“This is important because it sets a foundation for corporates in China to have a greater variety of hedging instruments and prepares the groundwork for a more flexible exchange rate,” an economist at Standard Chartered PLC in Hong Kong, Tai Hui, said.
Allowing more companies to protect themselves from foreign currency fluctuations and identifying some of the currencies against which the yuan will be measured, provides more signs President Hu is preparing to let the market play a greater role in setting the yuan’s value. China has faced increasing pressure from America and Europe to accelerate changes that may allow the yuan to appreciate and ease what trade partners call unfair trade advantages.
“They will take a cautious path to it, but we are confident they will eventually move toward some type of floating exchange rate,” a global currency economist at Citigroup in London, Marvin Barth, said. “The Chinese are moving in small steps toward a more market-oriented economy, just as they have for the past 20 years.”
The central bank has followed last month’s 2.1% revaluation by relaxing limits on how much foreign currency companies can hold and increasing the amount of yuan people traveling abroad can sell.
HSBC Holdings PLC said it will apply for a license to trade yuan for ward contracts, a day after the central bank said it’s letting more than 130 domestic and foreign banks trade contracts protecting them against swings in the yuan.
“We shall be applying,” the London-based bank said yesterday in an emailed response to questions. HSBC “shall be rolling it out as soon as approval has been given.”
