Q: What would you say about the changes to the data on China's external debt as at the end of March?
A: Overall, China's external debt has dropped more slowly and its solvency risk is within control. First, the decrease in outstanding external debt has slowed down significantly. As at the end of March 2016, China's outstanding full-scale external debt was equivalent to USD 1.3645 trillion, down by USD 51.7 billion or 3.6% from the end of 2015, or by 3.8 percentage points quarter on quarter. Second, the term structure of external debt has been further optimized. As at the end of March 2016, short-term outstanding external debt was down by 8% from the end of 2015, while that of mid- and long-term external debt was up by 4% from the end of 2015. Third, the decrease in external debt is closely related to the declines in foreign trade. China registered RMB 5.2 trillion in trade value under trade in goods in the first quarter of 2016, down by 5.9% year on year. Accordingly, the balance of trade credit and prepayments dropped as at the end of March, contributing 66% to the total decrease in external debt. Last but not least, as China's economic restructuring deepens, some companies' external debt such as inter-company loans has bottomed out after preliminary debt deleveraging. As at the end of March 2016, the outstanding inter-company loans rose by USD 14.9 billion or 7% from the end of 2015.
Further facilitation will be provided for cross-border financing by financial institutions and companies. According to the Circular on Rolling out Nationwide Macro-prudential Management of Full-scale Cross-border Financing (Yinfa No. 132 [2016]), the pilot program for macro-prudential management of full-scale cross-border financing in domestic and foreign currencies will be rolled out to financial institutions and companies across the country starting from May 3, 2016. From then on, the People's Bank of China and the State Administration of Foreign Exchange (SAFE) will not conduct ex-ante approval for external debt to be owed by financial institutions and companies, and these institutions and companies will be allowed to make cross-border financing in domestic and foreign currencies independently within the upper limit that is linked with their capital or net assets.
China's external debt is expected to be stabilized. Given the changes to the external debt data, it is expected that China's external debt will be stabilized as the macro-prudential management policy for full-scale cross-border financing is implemented. Next, the SAFE will continue to build and improve the external debt and capital flow management system under the macro-prudential management framework, and enhance ongoing and ex-ante monitoring and analysis to guard against the risks arising from unusual cross-border capital flows.
