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China’s Foreign Debt Risks Deserve High Attention (No.119, 2019)


By Zhuo Xian, Department of Development Strategy and Regional Economy, DRC & Wei Zijun, Central University of Finance and Economics

Research Report, No.119, 2019 (Total 5619) 2019-7-23

Abstract: With the loosening of cross-border financing policies and the tightening of the domestic cyclical industrial financing environment, China's foreign debt amount rose to US$ 1.97 trillion in 2018, and the proportion of foreign debts to GDP surged to 14.50%, making it the largest developing country with foreign debts. Compared with China’s huge economic aggregate, foreign exchange reserves and export volume, its foreign debt leverage ratio is relatively low, the external debt solvency ability is relatively strong, and the external debt risk is generally under control. However, it is noteworthy that there are problems to be resolved in China's overseas financing, such as the high proportion of short-term foreign debts in the hands of banking institutions, adverse selection of foreign debts by real estate enterprises, the periodical and structural problems including internal and external risk resonance in non-foreign exchange earning sectors. Therefore, we should have a correct understanding of the meanings of foreign debts to China's economic and social development, solve the problem of enterprises to find it difficult and expensive to access financing through the reform of domestic financial market instead of encouraging enterprises to over-borrow capital from overseas, improve the management of the scale and structure of foreign debts, implement the policy on foreign debt supervision with more targeted measures, and strictly control the foreign debt risks of local financing platforms.

Key words: foreign debts, cross-border financing, risks