HSBC becomes first foreign bank to help Chinese corporate borrow offshore dollars

UK bank HSBC is the first non-Chinese bank to take advantage of new Shanghai Free Trade Zone (FTZ) rules designed to ease foreign currency borrowing and bring down funding costs.

Shanghai FTZ allows corporates to use its free trade account to conduct foreign currency borrowing from offshore markets. People’s Bank of China, the country’s central bank, has also introduced a new policy that relaxes many of the rules of offshore borrowing activities. These include the removal of pre-approvals, an increase in borrowing quota and an expansion of transaction types.

In the wake of the new rules’ implementation, HSBC borrowed US dollars from an offshore market and lent it to a Shanghai FTZ subsidiary of Boaxin, a major auto dealer, at the offshore rate.

The trade financing deal was worth around $10m and is estimated to have allowed Baoxin to save around 2% on borrowing costs compared to equivalent rates from onshore banks.

“The new policy in the Shanghai FTZ has largely expanded the size of and channels for offshore borrowing activities for financial institutions and corporates in the zone, thereby enabling them to improve funding structures and lower funding costs,” said Terence Chiu, executive vice president and head of commercial banking for China at HSBC.

“This further demonstrates the zone’s leadership in piloting financial reforms in China. As one of the first foreign banks to set up FTAs in the zone, HSBC will continue to leverage our global connectivity to advance our efforts in supporting corporates’ business growth in the Shanghai FTZ.”