Foreign debt breaks $500 billion mark

09:05, October 11, 2010      

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China's foreign or external debt broke the $500 billion mark for the first time this year, indicating a revitalization of trade activity, according to figures released by the State Administration of Foreign Exchange Saturday.

The external debt increased by $70.5 billion to $513.8 billion at the end of June, 16 percent higher than the first quarter and a massive 53 percent jump over the same time last year.

Trade related debt reached $206.6 billion, an increase of $39.8 billion or 24 percent from previous quarter.

"(The substantial increase in trade related debt) is mainly due to the rapid upswing in foreign trade, and is low-risk because it is backed by the imported and exported goods," the foreign exchange administration stated. In addition, yuan appreciation has led to more transactions in US dollars.

Debt in US dollars was 72.1 percent of total external debt, an increase of 4.34 percentage points compared with the end of last year. The share of debt in other currencies declined slightly during the same period.

"With the appreciation of the yuan against the dollar and other foreign currencies, the share of debt in US dollars might increase further," said Ding Jianping, finance professor at Shanghai University of Finance and Economics.

A stronger yuan makes the cost of borrowing US dollars lower for importers and exporters, Ding said.

The rising debt, however, is not a cause for worry, according to analysts.

"The external debt is still within a safe range," said Ding, the Shanghai-based professor.

Despite double-digit growth, China's debt to GDP ratio is only about 20 percent, far below the levels of other major economies including the US and Japan, which could be higher than 90 percent.

The ratio of external debt to GDP indicates how easily a country can pay back what it owes. Credit rating agency Moody's changed the Chinesegovernment bond rating outlook from stable to positive Friday partially because of the country's sound fiscal condition and ability to pay back its foreign debt, indicating a potential rating upgrade.

Source: Global Times


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