Chinese banks pull record $22b back home

BEIJING - Chinese banks, including the central bank, brought a record US$16 billion ($22 billion) home from overseas in the fourth quarter, the Bank for International Settlements said.

The withdrawal, including from deposits in the United States and Britain, came amid speculation that China will loosen the yuan's fixed exchange rate of about 8.3 to the US dollar. The value of assets in China, such as bonds and stocks, might appreciate if the yuan were allowed to strengthen.

The BIS said the repatriation, coupled with the return of money to South Korea by banks from that country, resulted in a net US$10 billion inflow of money to the Asia-Pacific region for the first time in six quarters. At the same time, Malaysia's central bank sent more money abroad, as did the Taiwanese and Indian banks, including the Reserve Bank of India.

"Large deposit repatriations by banks in China and Korea offset increased placements abroad by banks in Malaysia, Taiwan and, to a lesser extent, India," BIS said. "In some cases, the change in deposit liabilities seemed to reflect central bank activity." Based in Basel, Switzerland, the BIS was formed in 1930 to administer Germany's World War I reparations. Its role has since expanded to provide banking services for 120 financial institutions, including central banks.

Joseph Tan, a Singapore-based economist at Standard Chartered, said continued repatriation could mean that the Chinese were avoiding a large one-off revaluation loss on their US dollar-denominated assets when the yuan strengthened.

"It could also be to recapitalise the banks and the financial sector."

President Hu Jintao, among others, has said China intends to let the yuan fluctuate but has never said when.

- BLOOMBERG