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China's economic planner warns against irregular offshore debt issuance
May 26, 2016 / 11:02 AM / a year ago

China's economic planner warns against irregular offshore debt issuance

SHANGHAI (Reuters) - Some Chinese firms are improperly issuing offshore debt, China’s economic planning agency said on Thursday, warning that violators will be punished and signaling concern over firms’ offshore debt as the yuan resumes its slide against the dollar.

Xu Shaoshi, head of the National Development and Reform Commission (NDRC) gestures as he speaks during a press conference on the sideline of National People's Congress in Beijing, China March 6, 2016. REUTERS/Damir Sagolj

The National Development and Reform Commission’s notice also said that issuing firms, underwriters and law offices that do not follow proper notification and registration procedures will be added to a national blacklist and punished.

Firms issuing foreign debt should carefully consider trends in international capital markets and strengthen risk management, the commission added in a notice posted on its website.

The yuan’s weakness against the dollar exposes Chinese companies who have borrowed dollars overseas - or engaged in hedging contracts - to rising risk of forex-related losses.

China experienced record net capital outflows of around $463 billion in 2015, according to a recent report by the Washington, D.C.-based Institute of International Finance. Much of that, analysts said, was due to Chinese corporates paying off foreign currency debt in the fear that further yuan depreciation would expose them to unmanageable risks.

After a sell-off in the yuan which roiled global markets in late 2015 and early this year, China’s currency had been largely stable until late April and outflows had slowed.

Earlier this week, the Shanghai Securities News reported that China’s insurance regulator was cracking down on illegal sales of foreign insurance products to Chinese nationals. The purchase of such products, which can sometimes be used as collateral for foreign currency loans, has been one popular way to move capital out of the country.

Editing by Jacqueline Wong

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