ThePaper.cn:

Recently, some developed economies kept on raising interest rates. Have there been any changes to China's external debt, and how does the SAFE evaluate China's current external debt level? Thanks.

Wang Chunying:

We can observe and evaluate changes in China's external debt from macro and micro perspectives.

At the micro level, market participants were more rational and cross-border financing adjustment was moderate. In recent years, market participants have been able to view the changes in interest rates and foreign exchange rates in a more rational way, and their expectations have become more stable. In line with the actual needs of trade and investment, we utilized and adjusted domestic and foreign financing reasonably, thus observing more smooth changes in the external debt. Fed's adoption of quantitative easing (QE) has lowered the financing costs in US dollars from 2020 to 2021. Therefore, the external financing demand of market participants expanded moderately, and the outstanding external debt of traditional financing types, such as cross-border deposits, loans, and trade credit, grew at an average annual rate of 8%, which was significantly lower than the 21% annual growth rate during the last round of Fed's QE from 2009 to 2013. In 2022, the Fed began to tighten monetary policy. The balance of financing external debt fell by 10%, which was markedly lower than the 34% decline in 2015. In the first quarter of this year, the outstanding financing external debt further stabilized. These changes show that if there is no excessive leveraging in the early stage, there will not be substantial deleveraging in the later stage, which is my explanation of the rise and fall of the external debt scale from the perspective of micro perspective.

From a macro perspective, the total amount of China's external debt is reasonable, with its structure being constantly optimized and risks controllable. First, the scale of external debt is compatible with China's economic development. It is a relatively desirable and benign pattern of external debt development for a country if it can fully absorb external funds to support its domestic economic development within a moderate range. In recent years, China's external debt has generally grown steadily, and the ratio of outstanding external debt to GDP has always remained within the range of 14%-16%. Second, the structure of China's external debt has been constantly optimized. At the end of last year, the proportion of the outstanding external debt in domestic currency and the outstanding medium- and long-term external debt reached 45%, up by 7 percentage points and 11 percentage points respectively from the end of 2016. About 30% of China's external debt is the domestic yuan bond held by overseas investors, of which most are medium- and long-term investments. Therefore, the overall risk of external debt servicing is relatively low. Third, the main external debt indicators are within the safety line, and the synergy between external assets and liabilities is enhanced. As of the end of last year, the ratio of external debt to GDP, ratio of external debt to exports, debt service ratio, and ratio of short-term external debt to foreign exchange reserves of China were all within the international safety line and far lower than the overall level of developed countries and emerging markets. At the same time, according to the statement of BOP, China presents itself as a country with net foreign assets. At present, the overseas assets held by foreign exchange market participants, excluding foreign exchange reserves, are close to $6 trillion, of which $3.5 trillion is in securities, deposits, loans, and other assets with good liquidity. Under the regulation of market mechanism, external assets and liabilities can be reallocated among different market participants, which provides sufficient financial support for them to undertake external debt repayment obligations.

According to our observation from micro and macro perspectives, we believe that the scale of China's external debt is reasonable, and it is expected to maintain a stable development trend in the future. SAFE will continue to improve cross-border investment and financing facilitation in the upcoming phase and work holistically to meet market participants' needs for cross-border financing while maintaining stable development and security. Meanwhile, we will also continue to keep a close eye on the security of external debt. Thanks.