More Control From Chinese Government
Chinese government decided to put more restrictions on firms that are try to raise low-cost funds abroad in order to tame financing risks. Local companies are allowed to sell debt overseas if the proceeds are aimed at improving China’s economy. The NDRC (National Development and Reform Commission) and the Ministry of Finance cautioned: they must "effectively prevent risks in medium- and long-term foreign debt and local debt risks".
Additionally, firms and financial institutions that are going to sell medium- to long-term foreign debt can’t ask for or get guarantees from local governments for financing operations. They will also be prohibited to reveal information on possible government credit support while selling the debt and credit rating agencies can’t connect corporate credit with local government finances.
Companies that want to raise medium- and long-term debt overseas should use interest rate swaps, forward foreign exchange trading, options, swaps and other financial products to preserve currency and avoid interest rate risks. Firms that have invested foreign debt in investment projects must set a market-based investment return mechanism to create stable and reliable revenues.
China’s foreign debt increased from 1.68 trillion dollars to 1.71 trillion dollars in September last year. Property developers were especially active in borrowing overseas, considering tightening regulatory restrictions and growing rates in China.