China's foreign exchange regulator announced new measures
yesterday to contain a rapid increase in foreign debt and ensure
stable economic growth.
The State Administration of Foreign Exchange (SAFE) tightened
rules governing foreign borrowing by local companies and
foreign-invested firms, noting that a continued uptrend in foreign
liabilities may threaten the nation's stable economic growth.
China borrowed US$148.3 billion in the first half of this year,
up 77.7 percent from a year earlier, it said earlier this
month.
"An excessive inflow of foreign debt, particularly short-term
debt, may pose a potential risk and have a negative impact on the
stable and healthy growth of the economy," a SAFE spokesperson said
yesterday.
Starting in December, import payments of no less than US$200,000
that are delayed 180 days or longer after delivery will be treated
as foreign debt. Such payments shall total no more than 10 percent
of the importer's total imports in the previous year, SAFE
said.
The move plugs a regulatory loophole in the management of trade
credit and will help provide more complete trade data for
decision-makers, it said.
Trade credit accounted for 53 percent of China's outstanding
short-term liabilities at the end of June.
The spokesperson did not elaborate on the causes of the rapid
increases in trade credit. Earlier this year, the administration
named it as one of the channels through which speculative funds
that are betting on the revaluation of renminbi were entering the
country.
China announced a long-anticipated reform of renminbi's exchange
rate, allowing the currency to strengthen by 2 percent against the
US dollar, but trading partners, who complain that the currency is
undervalued to give Chinese exports an unfair competitive edge, are
pressing for further action.
The administration said the new regulation is unlikely to
disrupt importers' normal operations, stressing that the 10 percent
can basically meet their needs of trade credit.
SAFE also announced tighter rules on the conversion of capital
and foreign debt by foreign-invested companies into the local
currency, providing more strict procedures for conversions of
US$200,000 or more.
The move followed measures in the past two years to tighten the
supervision of forex sales to banks, as the authorities tried to
harness the rapid increases in forex reserves, which were believed
to be partly a result of speculative capital inflows.
Under China's current forex management regime, companies are
required to sell a big portion of their forex to designated banks,
most of which end up in the nation's forex reserve stockpile.
The administration also tightened rules on fund management of
China-incorporated multinationals and the policy on overseas
guarantees, which it also said will not harm businesses.
Analysts say the current level of foreign debt, or short-term
debt, poses no serious threat to China's financial security, as its
hefty foreign exchange reserves provide adequate resources to repay
debts.
(China Daily October 22, 2005)