Banking

Hong Kong companies have already exhausted their full-year quota of yuan to settle trades, underscoring the rush by companies and investors in the territory for the mainland currency on expectations it will keep rising.

The Hong Kong Monetary Authority said the full-year 8 billion-yuan quota has run out, prompting the de facto central bank to draw on a currency-swap arrangement it has with China's central bank for yuan to meet local companies' funding needs. At current rates, the quota totals about US$1.2 billion worth of yuan.

Part of the reason the quota was depleted early, traders and analysts say, is that speculators appear to be using the trade-settlement system—meant to help expand the international use of the tightly controlled mainland currency—to get cheaper access to yuan to bet on further appreciation.

The HKMA warned banks in a statement late Thursday to "exercise caution to guard against nonpersonal business conversions disguised as transactions for personal use." The conversion limit for individuals, 20,000 yuan a day, remains unchanged.

Don’t be misled by the towering skyscrapers, Five Star hotels and modern cars that you see in Beijing and Shanghai. Doing business in China is just as difficult as always, and perhaps even more so.

In most industries, the local competitors are getting bigger, better and stronger and are giving their international rivals a run for their money. In industries like power, railway and telecoms that are dominated by a few large state-owned companies and where the Chinese government is investing heavily, the combination of state sponsored capitalism and private entrepreneurs with money and clout is delivering a fatal one-two punch to even the world’s largest companies.

China surprised investors by raising interest rates Tuesday, sparking a world-wide sell-off in stocks, commodities and emerging-markets currencies as investors lowered their expectations for Chinese growth, which has been seen as a key driver of the global economy.

China's central bank announced it would raise key rates by a quarter percentage point, the first move since it cut rates in December 2008. While many investors had been expecting China to raise interest rates in coming months, the timing of the move was unexpected. It is viewed as the first in a series of interest rate increases.

Currency markets, where exchange rates reflect bets by investors scouring the globe for the highest returns, reacted swiftly. On the assumption that China's rate boost will damp its economy, investors removed some bets on the currencies of other surging markets, and money flowed back to the U.S. dollar. Australia, seen as closely linked to Chinese growth, saw its currency fall 2.6% against the dollar. The U.S. dollar rose 1.8% against the Canadian dollar and 0.6% against the Brazilian real.

China's surprise interest-rate increase is more likely to accelerate capital controls in the more export-dependent Asian economies than to elicit copycat moves, analysts said.

Tuesday's announcement by the People's Bank of China rocked global markets and sparked a widespread shift toward safer assets such as government bonds by investors concerned that one of the main engines of the global economic recovery was being throttled.

But the timing—barely 36 hours before China was due to release third-quarter data on gross domestic product—might also indicate growth is so strong that China feels it can raise rates without risking a meaningful slowdown.

"Chinese policy makers are quite risk-averse, and the fact that they're raising interest rates is a signal that they're quite confident that growth is stable in China," said Frederic Neumann, co-head of Asian economic research at HSBC Bank. Thursday's GDP release "might actually show that China's economy expanded faster than expected," he said. That would ease concerns in Asian countries that depend on Chinese purchases of their exports.