Hong Kong Economic Herald:

The COVID-19 pandemic has caused liquidity tension of the U.S. dollar, and this problem hasn't been completely solved to this point. As China's balance of foreign debt has exceeded $2 trillion, will there be deleveraging on foreign debt? Thank you.

Wang Chunying:

Based on the current situation, the risk of significant deleveraging on China's foreign debt is relatively small. First, the growth of China's foreign debt has been comparatively stable in recent years. Here are some statistics for your reference. By the end of 2019, the balance of foreign debt reached $2.06 trillion, which was $277.4 billion more than the historical peak figure at the end of 2014. Although the absolute amount has increased, the relative increase of foreign debt is not high when compared to the economic growth in recent years. At the end of 2019, the balance of foreign debt stood at 14.3% of the GDP that year, whereas the ratio at the end of 2014 was 17%. Therefore, this ratio was down by more than two percentage points. In addition, as the foreign debt increased in recent years, China's external assets also rose. Therefore, we have made comparisons regarding the scale of foreign debt and external assets. By the end of 2019, this ratio was 26.7%, which is a decrease of 0.1 percentage point from the end of 2018 and a decrease of one percentage point by the end of 2014. This means that since deleveraging in 2015 and early 2016, the growth of China's foreign debt has been fairly stable. It is consistent with our economic growth, and it also matches China's openness to the rest of the world. In the meantime, during this period, the exchange rate of RMB has remained basically stable and fluctuated in both directions. There is no procyclical leveraging on China's foreign debt; thus, the risk of significant deleveraging in this field is relatively small.

Second, our external debt structure has been further optimized. For example, at the end of 2019, the external debt in domestic currency accounted for 35% of total external debt. This was two percentage points higher than in 2018, and the proportion of medium-and long-term external debt had steadily increased from 35% to 41%. Benefitting from China's interbank bond market, foreign investors purchased more domestic bonds than before, accounting for 26% of the total external debt in late 2019, which was up from 8% in late 2014. The investors have been mainly foreign central banks. These institutions and sovereign wealth funds chose to invest in Chinese bonds out of demand for medium-and long-term allocation of RMB assets. They are inherently stable and are not angling for short-term gains. In addition, China's debt ratio, foreign debt ratio and debt service ratio are all within the internationally recognized safety margins and are much lower than the overall level of developed countries and emerging markets.

We saw external debt deleveraging in 2015 and 2016 when the dollar interest rates and foreign exchange rate rose due to the Federal Reserve's hike of interest rates. Now, with the Fed adopting an easy monetary policy, the short- and long-term interest rates of the U.S. dollar continuing their downwards movement, and the RMB exchange rate remaining generally stable, it is unlikely that a large-scale deleveraging of external debt will reoccur.

Preliminary data from the first quarter shows that our registered external debt steadily increased, foreign investors increased their holding of China's domestic bonds, and there was no evidence of deleveraging. Thank you.

Xi Yanchun:

Thank you again Ms. Wang, Thank you all. Today's press conference is hereby concluded. 

Translated and edited by Zhang Liying, Li Xiao, He Shan, Wang Yanfang, Yang Xi, He Shan, Fan Junmei, Li Huiru, Liu Qiang, Wang Qian, Zhang Jiaqi, Wang Wei, Zhu Bochen, Guo Xiaohong, Gong Yingchun, Laura Zheng, Scott Rainen. In case of any dispute over a discrepancy, the Chinese version is deemed to prevail.