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Short-term debt rise acceptable
( 2003-09-22 10:08) (China Daily)

This year's rapid rises in China's short-term foreign debts pose no threat to the nation's financial security, but the reasons should be examined to prevent possible risks, analysts said.

China's outstanding short-term foreign debts jumped by 21 per cent from the end of last year to US$64.2 billion at the end of June, accounting for 35.2 per cent of total outstanding foreign debts, the State Administration of Foreign Exchange (SAFE) said earlier this month.

Such a situation, especially the greater share of short-term liabilities, "has caught the attention of China's related departments," SAFE said in a statement.

SAFE attributed the faster rate of borrowing to China's robust economic growth and lower interest rates on foreign markets, but analysts say the possibility that funds flowed to China in anticipation of an appreciation of its currency, or the renminbi, cannot be ruled out.

Expectations that the renminbi may appreciate under foreign pressure are believed to have already resulted in an estimated US$20 billion in "hot money" inflows in the first half of the year.

Wang Yuanhong, a senior analyst with the State Information Centre, said: "It's very difficult to know where the money came from, and where it is destined. This will require further observation."

Rapid short-term debt increases may add further stress to China's already fast growth of money supply as the foreign currencies are converted into renminbi, and carry bigger risks once the investments fail to deliver expected returns, he said.

Tan Yaling, a senior analyst with the Bank of China's Institute of International Finance, said the upswing in China's short-term foreign debts can possibly be a natural consequence of the country's rapid economic growth at a time of global sluggishness.

"The economies of the United States, Europe and Japan are not doing well. China is relatively stable and is opening up gradually. So unavoidably, some short-term speculative funds will flow in," she said.

The current level of short-term foreign debts poses no major threat to China's foreign debt security, SAFE has said. Short-term foreign debts amounted to as high as 80 per cent of the total in some Asian countries like Thailand as financial turmoil swept the region in 1998.

China maintains sufficient foreign exchange reserves, which totalled US$346.5 billion at the end of June.

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