The enterprises were the main recipients of US$170 billion borrowed by the Ministry of Finance and domestic finance institutions over the past 20 years.

Government chiefs said the ability of the enterprises to manage such debt was now a pivotal factor in the nation's foreign debt security.

"Foreign debt risk management by State-owned large and medium-sized enterprises is currently the focus of national foreign debt risk management," according to a joint circular from the State Development Planning Commission, the central People's Bank of China and the State Administration of Foreign Exchange.

China's outstanding external debt stood at US$170.1 billion at the end of last year.

In the guidelines, the authorities encouraged heavily indebted SOE borrowers to either take out foreign currency loans from domestic financial institutions or issue foreign currency denominated bonds to them, using the proceeds to repay liabilities accumulated at higher interest rates.

Eligible SOEs are also allowed to issue renminbi-denominated bonds or buy hard currency to pay foreign creditors.

Global interest rates are currently at a very low level, with the United States' federal funds rate at a 40 year low and China's benchmark rate at a 20 year low.

"Changes on the international and domestic capital markets have created an opportunity for Chinese enterprises to optimize their foreign debt structure," the circular said.

Banks welcomed the move which represented fresh business opportunities and the chance to utilize soaring foreign exchange savings deposits more efficiently.

"This has brought us many opportunities," said a senior manager with a State-owned commercial bank, who preferred not to be named.

As well as more foreign exchange loan agreements, the manager said the reform is also expected to bring greater profits from underwriting bond issues and give domestic banks a push in developing new financial derivatives to limit debt-related risks.

Foreign exchange deposits at China's financial institutions climbed by 2.5 per cent on a year-on-year basis to US$143.6 billion at the end of May.

(China Daily July 26, 2002)