With China’s loan market moving rapidly to the loan prime rate, or LPR, over the past few years, foreign lenders have been looking for suitable hedges. Their major problem is that the onshore cross-currency swap market is illiquid, particularly against the LPR, and currency controls mean lenders are unable to obtain the physical cash they need to lend.
But the tightening basis between onshore (CNY) and offshore (CNH) renminbi interest rates has created an opportunity to use the latter’s more
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