China News Service:

Given the global liquidity tightening, the cost for external financing is on the rise. China's outstanding foreign debt fell in the first quarter. How do you see the risk of deleveraging of China's foreign debt? Thank you. 

Wang Chunying:

According to the latest statistics, China's outstanding foreign debt stood at about $2.71 trillion at the end of the first quarter, down $36.4 billion or 1% from the end of the previous year, which is considered to be a mild change. Due to the impact of the Fed faster tightening of monetary policy and various complex external factors, China's foreign debt will maintain a reasonable and orderly development trend for a period in the future. We believe the risk of deleveraging you are concerned about is controllable in general. I'll provide the following aspects to support my judgment.

First, the growth rate of foreign debt is relatively stable. In recent years, the proportion of China's foreign debt in GDP stood at 14%-16%. The growth rate of foreign debt is in line with economic development, and there is no excessive accumulation. During the current round of the Fed's loose monetary policy, there was no continuous and intensive cross-border funding, which means that there was no excessive leverage of foreign debt. So, the risk of deleveraging is controllable in general. As the external environment is being adjusted, the RMB exchange rate has become more flexible with two-way fluctuation. The exchange rate expectation is relatively stable, so the risk of deleveraging foreign debt is low. 

Secondly, China's foreign debt structure has been continuously optimized. The growth of China's foreign debt has been largely attributed to overseas institutions' investment in domestic RMB bonds, most of which require long-term investment demand. The growth of traditional financing foreign debt is relatively slow. All structures of China's foreign debt types, currency, and debt maturity have been improved. Meanwhile, the balance between external assets and liabilities has improved structurally and continuously. Generally speaking, China remains to be a net foreign creditor with all types of external assets exceeding external liabilities by $2 trillion, which means that the net external claims shown on the International Investment Position for the first quarter of this year was $2 trillion. The combined outstanding external debt of banks, companies, and private sectors had reached $2.1 trillion by the end of the first quarter of this year, accounting for 79 percent of China's full-scale outstanding external debt. Private sectors' external credit assets reached $3 trillion, higher than the external debt taken on by them. The credit assets mainly refer to highly liquid assets such as bonds, deposits, and loans. We believe that with the effective adjustments of the foreign exchange market, the private sector including banks and companies will be able to meet debt obligations and strike a balance between external assets and debts. 

Thirdly, the safety indicators of China's external debt remain sound. As a net-saving country, China's current account has maintained a certain scale of surplus. Being the indicators measuring a country's solvency, the external debt ratio, debt ratio, and debt serving ratio were within the safe zone in accordance with international standards in 2021, and much lower than the overall level of developed countries and emerging market economies. Regarding short-term liquidity, China's foreign exchange reserve ranks first in the world at present, with the ratio of short-term external debt to foreign exchange reserve being 45 percent, much lower than the international warning line of 100 percent.

That's all my response to your questions. For the next step, we will strengthen monitoring and analysis of the external debt situation, effectively preventing possible risks. Thank you.