21 companies join reform on borrowing from outside China
China has chosen 21 pilot companies to reform the management of external debt, with the goals of further opening up its financial sector and supporting domestic economic development.
Within an annual limit, the pilot companies can choose when to issue debt. Also, companies issuing external debt at intervals can provide information after the release, instead of registering ahead of time, the National Development and Reform Commission (NDRC) said on Tuesday in a statement on its website.
The 21 pilot companies include Bank of China, China Railway Construction Co and HNA Group.
"This move is part of the country's goal to open up its financial sector, as it gives more rights to companies," said Tan Xiaofen, vice director of the International Finance Research Center at the Central University of Finance and Economics.
The reform can also help reduce companies' exchange rate risks, Tan said.
For example, driven by the country's "One Belt and One Road" initiative, many domestic companies are investing overseas.
Companies borrowing dollars can hedge currency risks if they have dollar assets, he said.
The NDRC encourages direct issuing of external debt by the parent companies of pilot firms. In addition, more external debt issued by financial institutions should be used for the real economy and supply-side structural reforms.
The NDRC has its reasons for announcing this reform now. "Currently, companies may not borrow large quantities of foreign currency because it increases their costs when the yuan depreciates," Tan told the Global Times on Tuesday.
At present, the nation's external debt is low, Tan noted.
The balance of outstanding dollar-denominated external debt stood at $1.41 trillion as of 2015, down 20.4 percent year-on-year, according to statistics released by the State Administration of Foreign Exchange in April.
Short-term external debt stood at $920.6 billion in 2015, accounting for 27.6 percent of the country's foreign exchange reserves, the statistics showed.
The NDRC also stressed that companies issuing external debt should closely follow trends in international capital markets and strengthen risk management.
