Increase in the scale of foreign debt and optimization of the structure-

RMB assets appear attractive

  Our reporter Yao Jin

  Recently, the State Administration of Foreign Exchange released data showing that at the end of March this year, China’s full-caliber foreign debt balance was US$2.5 trillion, an increase of 5% over the end of the previous year.

Generally speaking, in recent years, the scale of China's foreign debt has steadily increased, and this trend is currently continuing.

  What is the main driving force for the continued growth of the external debt balance?

According to Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, from the perspective of the composition of the increase in foreign debt, the increase in China's foreign debt in the recent period is mainly due to the increase in the holding of domestic bonds by foreign investors.

Since 2020, foreign purchases of domestic bonds accounted for roughly half of the full-caliber foreign debt increase.

This is mainly because China's economy has taken the lead in recovering, the bond market has continued to open up, the return on renminbi assets has been good, and the hedging properties have also strengthened.

In this category of foreign debt investors, more than half are foreign central banks and sovereign wealth fund institutions.

The investment targets are mainly bonds issued by government departments, which are relatively stable.

  "We have observed changes in related long-term capital remittances. Since 2019, sometimes the foreign exchange market has more pressure on supply and demand, sometimes lesser, sometimes the U.S. dollar index has risen or fallen a lot, and the renminbi has risen a lot. No matter what the situation is, the relevant investment funds have always inflowed since 2019, and have shown a net inflow for 30 consecutive months. Therefore, this mainly reflects the diversified asset allocation and asset allocation of foreign investors. Seek choices and needs for stable income." Wang Chunying said.

  How to look at the development trend of foreign debt in the next step?

Wang Chunying believes that, first of all, the attractive factors for investors still exist. Foreign investors will continue to invest in our bonds, and the future growth of foreign debt will mainly be based on such funds.

In October of this year, China’s government bonds will be officially included in the FTSE Russell World Bond Treasury Bond Index. So far, all major international related indexes will cover renminbi bonds.

At the end of June, foreign capital accounted for 3.1% of the domestic bond custody, and there is a lot of room for improvement in the future.

At the same time, there will be no rapid growth, because the global economy recovers and external liquidity and interest rates will return to normal.

Therefore, the pace of foreign investment in increasing domestic bond holdings should be more stable, focusing on long-term investment and diversified asset allocation.

  Secondly, since last year, the growth of non-resident deposits has accounted for about 30% of the increase in the full-caliber foreign debt.

Non-resident deposits are mainly due to the increase in bank deposits of overseas Chinese-funded companies. Many companies are listed in Hong Kong, issued bonds, and after raising funds, they are deposited with domestic commercial banks.

For domestic commercial banks, it is a passive part of the liabilities, not active financing.

In the case of sufficient domestic foreign exchange liquidity, commercial banks are more inclined to use this part of the funds abroad, which is generally reflected as "outside and outside."

Another feature is that, in general, non-resident foreign exchange deposits cannot be settled except for QFII funds, and if withdrawals do not involve the purchase of foreign exchange.

Therefore, "inbound and outbound" does not involve the settlement or purchase of foreign exchange, and it basically has no effect on the net flow of cross-border funds and the supply and demand of the foreign exchange market.

  Third, traditional financing foreign debts such as loans and trade credits are generally stable.

As of the end of March, the balance of this type of foreign debt remained the same as at the end of 2020, and was lower than the historical high at the end of 2014.

It shows that despite the relatively loose external liquidity, Chinese companies have relatively stable expectations, and cross-border financing is rational and orderly, and there is no obvious large-scale increase in leverage.

  It is worth noting that the scale of the US$2.5 trillion foreign debt will be relatively high, and will the risk be relatively high?

In this regard, Wang Chunying said that from the perspective of some macro indicators, China's current foreign debt is optimizing both in terms of currency structure and term structure, and the overall debt repayment ability is relatively strong.

As of the end of March, RMB foreign debt accounted for 43%, an increase of 1.3 percentage points from the end of last year.

The proportion of foreign debt in the medium and long term is 45%, which is maintained at a relatively high level.

Judging from the safety indicators of foreign debt, as of the end of last year, the debt ratio, debt service ratio, and debt ratio were all within the international safety line, and they were all lower than the overall level of developed and emerging market countries.

  "Therefore, both in terms of structure and overall, the risk of foreign debt is controllable. The foreign exchange bureau will continue to monitor and pay attention, especially the changes in currency and structure, and will also focus on guiding market entities to pay attention to risks and strengthen risks. Awareness, reasonable arrangement of own assets and liabilities structure." Wang Chunying said.