China's short-term foreign borrowing as a proportion of its
total outstanding foreign debt has hit a record 57.5 percent by the
end of March.
At the same time, the country's total outstanding foreign debt
increased by 8.57 billion US dollars to 331.56 billion US dollars,
according to the State Administration of Foreign
Exchange(SAFE).
Short-term foreign borrowing jumped by seven billion US dollars
to 190.63 billion US dollars, rising as a proportion of total debt
by 0.65 of a percentage point in three months.
Experts warned the short-term debt growth and the proportion
growth indicated an active trans-border capital flow and may bring
more pressure to?China's fast-growing economy.
The country's gross domestic product (GDP) rose 11.5 percent in
the first half, after it grew 11.9 percent in the second
quarter.
Despite a series of measures to curb excess liquidity, such as
interest rate hikes and reserve requirement ratio rises, China's
benchmark Shanghai Composite Index on the Shanghai Stock Exchange
continues to surge.
Due to the yuan's continuous appreciation and the booming stock
and property markets, speculators were pouring cash in, said Ding
Zhijie, vice director of the School of Banking and Finance of the
University of International Business and Economics.
By the end of March, trade credit, a channel speculators prefer
to use to maneuver trans-border capital flow, amounted to 108.6
billion US dollars, a rise of 4.6 billion US dollars from the end
of last year.
"It is difficult to identify how much idle capital has come in,
but there's no doubt that speculative funds remain unabated in
entering China," said Ding.
His concern was shared by Deng Xianhong, vice director of the
SAFE who warned that some speculative funds had entered the market
under the guise of trade or investment and flowed into stock and
the property markets.
Ding said market expectations of a rising yuan had aggravated
the risk as local exporters tended to settle payments for goods in
advance to avoid foreign exchange losses.
"Normally, the payment will be advanced by only six months. In
extreme cases, it can be two years ahead of schedule which raises
the possibility of the inflow of speculative funds through trade
credits," Ding said.
The SAFE has drawn a list of companies "deserving special
attention" and issued regulations to lower the ceiling on
outstanding short-term foreign debt held by financial
institutions.
SAFE figures showed a total of 5,303 local enterprises have been
put under surveillance last November after being suspected of using
their capital for speculation. Another 472 companies have been
added to the list by the end of April.
However, Yi Xianrong, researcher of the Institute of Finance and
Banking of the Chinese Academy of Social Sciences, said the
government could ward off speculative funds by prohibiting suspect
enterprises from converting short-term foreign loans into yuan.
The country's short-term foreign bond issue was equivalent to
just 14.3 percent of China's foreign exchange reserve, much lower
than the world warning line of 1:1, insiders said.
(Xinhua News Agency August 1, 2007)
