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Sunday, December 09, 2007

Is the Lending Slowdown Biting?

From the FT today:

China loan curbs hit businesses

By Henny Sender

Published: December 9 2007 16:32 | Last updated: December 9 2007 16:32

In the Chinese river city of Fuling, where Hong Kong’s Noble Group has a soybean crushing operation, the barges continue to unload their cargo of soybeans to be turned into meal and cooking oil and sold on to customers.

But in recent weeks, some of those customers have been doing something new, company officials say: asking Noble to provide them with credit because they can no longer obtain financing from their banks.

But what with one hand you take away, with the other you give:

China raises foreign investment quotas

By Sundeep Tucker in Hong Kong, Geoff Dyer in Shanghai and Richard McGregor in Beijing

Published: December 9 2007 22:06 | Last updated: December 9 2007 22:06

China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.

The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.

The announcement will be welcomed by foreign investors, who have been lobbying for greater access to the mainland’s booming stock market, and comes amid signs Beijing is poised to permit further foreign investment in the domestic securities industry.

The Financial Times reported last week that Credit Suisse and Morgan Stanley had each signed agreements with Chinese partners to establish mainland investment banking ventures – the first such moves since a moratorium on further foreign involvement in the sector was introduced two years ago to protect local firms.

Citigroup, Merrill Lynch and JPMorgan are among the other US investment banks discussing potential partnerships with mainland securities firms, though foreign bankers believe new ventures will be not allowed to operate in some lucrative business areas.

Beijing is expected to point to the twin developments to placate the US delegation, led by Hank Paulson, US Treasury secretary, which has been lobbying China on a number of fronts since the so-called Strategic Economic Dialogue began last year.

Beijing agreed in principle to expand the quota for the Qualified Foreign Institutional Investors scheme at a previous round of bilateral talks in May, though it held back implementation because of a surge of capital trying to enter the country.

The flagship index on the Shanghai market has fallen by about 15 per cent in the past month, though it has still doubled this year.

In an indication of how lucrative the Chinese capital market has been to the 49 institutions which have secured QFII licences, the regulator said on Sunday that the value of their securities had risen to Rmb200bn ($26.5bn) from the initial investment quota of $10bn.

News of the revised quota was welcomed by Chris Ruffle, co-chairman of MC China, a subsidiary of Martin Currie, a UK-based fund manager and largest foreign investor in A-shares.

Mr Paulson is still expected to come under pressure from US investment banks to ensure that new securities ventures will be allowed to trade mainland stocks.

Beijing is expected to permit Credit Suisse and Morgan Stanley to each acquire a 33 per cent stake in their ventures – the maximum allowed under the law. However, western bankers familiar with the thinking of Chinese authorities believe that the new securities ventures will only be granted licences to underwrite initial public offerings and not to trade domestic stocks.

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