Chinese firms turn to Hong Kong banks for loans

Chinese firms are turning to Hong Kong’s banks for loans as the central government tries to bring the inflation rate down from a three-year high by reducing access to credit.

Financial institutions’ claims on Chinese mainland companies rose fourfold to 1.6 trillion yuan or US$250 billion since May 2009. They will provide another 700 billion yuan to 1 trillion yuan of loans to mainland firms in the second half of 2011.

New loans in Hong Kong grew by HK$940 billion or US$121 billion last year, up 29 percent from the year before, according to an April 11 letter from Norman Chan, the chief executive of the Hong Kong Monetary Authority. A total of HK$440 billion was lent to mainland non-bank customers, an increase of 47 percent. In comparison, property lending in Hong Kong rose 19 percent, Chan wrote.

Most of the mainland borrowers were state-owned enterprises or “companies owned by provincial or municipal governments,” he said in the letter. Sixty-percent of the lending was either fully collateralized by bank deposits on the mainland or backed by guarantees by major mainland lenders.

“If you borrow in Hong Kong it’s a hell of a lot cheaper than in the mainland,” Jim Antos, a banking analyst at Mizuho Securities Asia, said in a telephone interview from Hong Kong on August 10. “The money is easily repatriated or sent to China.”

The full story is available at Bloomberg.