SAFE Says Foreign Debt Deleveraging Has Come to an End

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Data from the State Administration of Foreign Exchange (SAFE) indicates that that China’s full foreign debt balance was USD$1,420 billion as of the end of 2016, for year-on-year growth of 2.7%.

Despite this increase a representative from SAFE said China’s foreign debt deleveraging process was “basically over” following the gradual reduction of cumulative risk during the preceding period, and that this process would steadily continue in 2017.

As of the end of 2016 all of China’s key foreign debt risk indicators were within internationally-accepted standards.

China’s debt ratio was 13%, its foreign debt ratio was 65%, its debt servicing ratio was 6%, and the short-term foreign debt to foreign exchange reserves ratio was 29%.

China saw a sharp decline of $397 billion in its foreign debt in 2015, and a further fall of $51.5 billion in the first quarter of 2016, on the back of repaid loan repayments by enterprises.

Following this year-long period of deleveraging, however, the Chinese government released a slew of policies to make it easier for local companies to obtain cross-border financing, leading to three successive quarters of growing foreign debt starting from Q2 2016.

SAFE said that the deleveraging process would be of benefit to reducing China accumulated foreign loan risk, as well as reducing risks associated with highly leveraged operations and currency misallocation.

 

 

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