By Kim Jae-won
Staff Reporter
Major Chinese banks operating here are busy buying up dollars from Korean lenders as they are suffering a dollar shortage due to China's tightening monetary policy and the rising possibility of revaluating the yuan.
Seoul branches of three Chinese banks - China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), and Bank of Communications - said that they are seeking to buy dollars from Korean banks in order to offset the drainage of dollars at their headquarters.
They said that there are two key reasons behind their dollar buying here - tightening money supply policy and looming appreciation of the yuan.
"We decided to buy dollars here as our main office reduced its U.S. currency supply. Our headquarters are running out of dollars as Chinese people turn their dollar accounts into yuan accounts ahead of renminbi appreciation," an employee of ICBC said.
These Chinese branches are joining in the domestic capital market and visiting local lenders to buy U.S. dollars.
"We take part in the local money market as Korean lenders have abundant U.S. currency. It is the first time that we have joined the local market," an employee at the Bank of Communications said. "However, the amount of money is not that much. It is short―term financing to pay for short―term bonds."
Another source from the CCB said that it is a strategy of diversifying the source of foreign currency funding. "We want to have various routes for U.S. dollars as China has liquidity problems for greenbacks nowadays. We take dollars from Korean lenders and other foreign banks from European countries."
It is highly expected that China will accept the U.S.'s long―time wish for the appreciation of the yuan in the foreseeable future. Analysts said that the world's third―largest economy will revalue its currency by 3 percent to 5 percent this year.
"The Chinese government may appreciate the yuan soon as they are afraid of inflation," Qu Hongbin, a chief economist of HSBC Asia-Pacific Regional Office, said in an interview with The Korea Times last month.
Others remark that tightened rules for Chinese lenders was also behind the currency shortage. The Chinese government recently asked banks to raise their BIS capital adequacy ratio up to 11.5 percent.