On October 22, the State Council Information Office held a press conference to discuss the foreign exchange revenue and expenditure data for the first three quarters of 2024. At the event, Jia Ning, Director of the International Balance of Payments Department at the State Administration of Foreign Exchange, addressed the current status of China’s foreign debt.
Jia noted that the scale of China’s foreign debt is generally moderate and the repayment risks remain low. He shared that in the first half of this year, China’s foreign debt steadily increased. By the end of June, the total balance of foreign debt reached $2.54 trillion, marking a $97.1 billion rise from the end of 2023, an increase of 4%. This growth can be attributed to several factors. Firstly, the stable development of China’s economy, combined with a rise in the comprehensive yield of renminbi bonds, drove foreign investors to steadily increase their holdings of renminbi-denominated bonds. As a result, bonds-related foreign debt increased by nearly $90 billion during the first half of the year, reaching historic highs. Furthermore, as expectations grew surrounding potential interest rate cuts by the Federal Reserve, domestic enterprises and banks slowed down their repayment of foreign debts, leading to a recovery in financing-related foreign debts including loans and trade credits, which rose by over $8 billion during the same period. Preliminary statistics suggest that the overall size of foreign debt remained stable in the third quarter.
Jia emphasized that China’s foreign debt is well-matched to the country’s economic development. Despite facing tightening and loosening conditions from changes in U.S. monetary policy in recent years, China’s foreign debt has remained stable, with the ratio to GDP fluctuating within a narrow range of 14% to 16%. He highlighted that the cross-border financing by enterprises effectively supports the real economy. Additionally, the risk of foreign debt repayment is manageable, as key financial ratios, including debt-to-equity ratios, and the ratio of short-term foreign debt to foreign exchange reserves, are all within internationally recognized safety levels.
Moreover, Jia pointed out that the structure of China’s foreign debt continues to improve. By the end of June 2024, the proportion of renminbi-denominated debt and medium to long-term debt accounted for 49% and 44% respectively, which represents a 13 and 3 percentage point increase since the end of 2019. This indicates a significant reduction in risks from mismatched debt maturities and currency exposure.
Looking ahead, Jia expressed optimism for the future, noting that China’s foreign debt is likely to maintain a stable growth pattern. As the economy shows signs of recovery and the financial market continues to open, the functionality of renminbi assets in attracting foreign investment is expected to grow. Furthermore, China’s potential for foreign trade and investment continues to be unlocked, coupled with expectations of interest rate reductions in developed economies like the U.S. and Europe, which could lead to a gradual increase in demand for foreign debt among businesses.
