China’s foreign debt rose abruptly in the first half of this
year owing to macroeconomic factors such as the persistent
expectations of a Renminbi revaluation and policy adjustments, the
State Administration of Foreign Exchange (SAFE) announced on
Wednesday.
However, the sudden increase in outstanding foreign liabilities
does not signal heightened foreign debt risk for China, and
external borrowing by foreign banks operating here will likely
decline for the remainder of the year, according to SAFE.
China’s outstanding foreign debt totaled US$220.1 billion at the
end of June, up 14.1 percent from the end of last year. Short-term
debt stood at US$98.9 billion, a 28.0 percent jump from the end of
2003.
New borrowing, excluding trade credits, surged 97.8 percent
year-on-year to US$83.4 billion during the first six months of the
year, SAFE said.
The net inflow of foreign liabilities -- new borrowing minus
repayments and interest -- was US$22.7 billion for the period, six
times the amount recorded one year earlier.
“Generally speaking, the continued increase in China’s foreign
debt was influenced by such factors as the rapid growth in the
domestic economy and foreign trade,” according to a SAFE
statement.
The strong 9.7 percent economic growth in the first half of this
year meant high funding needs. Meanwhile, the government’s ongoing
macro control policies -- aimed at bringing down monetary and
investment growth -- caused a funding shortage and forced
businesses to borrow from overseas.
The interest rate differentials between China and international
markets, as well as the continued expectations of Renminbi
appreciation, are also factors behind the rapid rise in foreign
debt.
However, the recent interest rate increases in the United States
narrowed interest rate differentials and will hopefully put a
damper on China’s foreign debt growth, said SAFE.
Of greater impact were policy adjustments to foreign banks’
foreign debt regulations and forex sales rules, which had a
significant impact on the foreign debt picture in the second
quarter.
New rules governing foreign banks’ foreign borrowings were
issued in May, requiring them to bring their outstanding loans from
outside China to below authorized ceilings by the end of this year.
They are also required to reduce their short-term liabilities below
the amount outstanding at the end of June before the end of the
year.
(China Daily September 30, 2004)