Best News Network

Shanghai’s lockdown delays dollar buying, gives falling yuan reprieve

Article content

SHANGHAI/SINGAPORE — Shanghai’s COVID-19 lockdown is wreaking havoc on companies’ dividend-payment paperwork and bankers say it is delaying summertime dollar buying as some firms are unable to collect the signatures and company seals needed to process FX contracts.

Offshore-listed Chinese firms usually have to buy dollars to pay overseas shareholders from June to August, and typically start buying in May. Delays this year will relieve pressure on the yuan and some traders say it is providing a cushion, preventing the currency from falling at an even faster pace.

Advertisement 2

Article content

While some payments could be extracted from company balance sheets, many still need to go through banks to buy foreign exchange and three banking sources said COVID-19 mobility restrictions in Shanghai, China’s financial and commercial hub, were making the formalities very difficult.

Companies usually register and report such dividend payments to regulators and announce the details of the plan in relevant disclosures before making requests to banks for cross-border money transfers, according to the sources.

They said some corporate representatives told lenders that they were unable to sign the documents that banks required to proceed with purchases and payments as the executives were confined at home.

Advertisement 3

Article content

“Some companies discussed and came to ask banks for possible solutions,” said one senior banker with direct knowledge of the situation but who, like another two, requested anonymity because they were not authorized to discuss it publicly.

They added that some executives had access to corporate online banking at home, but many did not have their official company stamps kept under lock and key in the office.

In China, the traditional business practice of stamping documents with the official red company seal gives contracts and transactions legality.

The jam is reminiscent of challenges forced upon western financial institutions in 2020 when lockdowns drove underwriters at Lloyds in London to abandon time-honored face-to-face dealings with emails and online approvals.

Advertisement 4

Article content

China’s restrictions are tighter and bigger. While it is early in the dividend season, banks say dollar demand during this period – around $70 billion last year – is barely anything when it would normally have started to pick up by the middle of May.

“Paperwork apparently got stuck,” said one foreign exchange banker.

SLOWDOWN

Forty-one Chinese cities were under some kind of lockdown as of May 10, affecting nearly 300 million people, Nomura said in a research note published this week, estimating these cities contribute roughly 30% of the country’s gross domestic product.

Shanghai has put the vast majority of its 25 million residents under lockdown since March 28. Most businesses and activities remain largely halted and the city is very cautious in easing stringent virus containment measures.

Advertisement 5

Article content

The delays in corporate foreign exchange demand, even if only temporary, seem to be straining liquidity and reducing trade volumes in the interbank market.

A rising greenback and gloom over China’s economic outlook has sent the yuan down more than 6% on the dollar in four weeks – the steepest drop in decades.

“The process (of making FX purchases) is getting slower, but the total amount of dividend payouts remains the same,” said Xing Zhaopeng, senior China strategist at ANZ.

Hong Kong-listed Chinese companies handed out more than $70 billion worth of dividend payments in 2021, official data shows. The volume could climb further to about HK$680 billion ($87 billion) this year, according to Reuters calculations based on preliminary data from Refinitiv.

“We don’t expect a material step-up of capital controls although we do believe the extended lockdown and stricter COVID containment measures will create some partial disruptions,” said Becky Liu, head of China macro strategy at Standard Chartered.

“While a rise of dividend payments will increase the need for dollars, the hefty FX deposits in China will likely provide a strong cushion and reduce the need for fresh new conversions.” ($1 = 7.8499 Hong Kong dollars) (Editing by Jacqueline Wong)

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Stay connected with us on social media platform for instant update click here to join our  Twitter, & Facebook

We are now on Telegram. Click here to join our channel (@TechiUpdate) and stay updated with the latest Technology headlines.

For all the latest Business News Click Here 

 For the latest news and updates, follow us on Google News

Read original article here

Denial of responsibility! NewsAzi is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.