China's foreign debt rose 5.1 percent to $392.6 billion by the end of March compared with the end of December, with the bulk of the increase attributable to the growth in short-term debt, according to the State Administration of Foreign Exchange (SAFE).

Analysts warned that the fast increase in short-term borrowing pointed to the risk of influx of speculative capital that bets for yuan appreciation.

Short-term debt amounted to $236.7 billion, accounting for 60.3 percent of the total foreign debt. The short-term borrowing was up by $16.6 billion, or 88 percent, of the $18.97 billion increase in the overall foreign debt by the end of March, the SAFE said on Friday in a statement.

Medium and long-term debt rose by $2.3 billion in the first quarter to $155.9 billion, accounting for 39.7 percent.

The proportion of short-term debt to the overall borrowing was up from 58.9 percent at the end of December and 57.2 percent at the end of September.

"The increase in the proportion of the short-term borrowing may have something to do with the speculative hot money inflows," said Guo Tianyong, economist with the Central University of Finance and Economics.

"Although the short-term borrowing, since it is included in the official statistics, look like normal debt, the capital can be used for some speculative purposes," he said.

Official statistics show that China's foreign currency lending has been on the rise in recent months, which is the main reason for the continual increase in short-term borrowing, Guo said. Some banks, especially foreign ones, have borrowed from overseas in order for them to lend to domestic enterprises. "Some of the lending may be used for speculative purposes," he said.

As the yuan has kept appreciating, economists warned that speculative capital is flowing into China in an accelerated pace. Some calculated that the total of such capital in China could be $1.75 trillion, about the same as China's foreign exchange reserves.

(China Daily July 5, 2008)