The State Administration of Foreign Exchange (SAFE) has recently disseminated China's external debt data as at the end of December 2017, and an official from the SAFE answered media questions on relevant issues regarding China's external debt.

Q: Could you brief us on the overall changes in external debt for 2017? How to evaluate the external debt risks facing China now?

A: China's external debt was on the rise in 2017. As at the end of December, the full-scale outstanding external debt (including domestic and foreign currencies) hit USD 1.7106 trillion, up by USD 294.8 billion year on year. In terms of quarters, external debt rose fastest in the second and third quarters, amounting to USD 124.9 billion and USD 117.2 billion respectively; the outstanding external debt climbed by USD 35.5 billion in the fourth quarter, which was very low. As for debt vehicles, the growth in external debt in China was primarily driven by the increases in currencies & deposits, and debt bonds, with their contribution to the overall expansion of external debt reaching 42% and 37% respectively.

The external debt risks facing China are within control now. As at the end of 2017, the liability ratio, or the ratio of outstanding external debt to GDP was 14%; the debt ratio, or the ratio of outstanding external debt to export income from trade in goods and services was 71%; the debt servicing ratio, or the ratio of payments of principal and interest on external debt in the middle and long term and payments of interest on external debt in the short term to export income from trade in goods and services, was 7%, and the ratio of short-term external debt to foreign exchange reserves was 35%. All of the above indicators are below the internationally accepted safe levels.

Q: What are the drivers of the growth in China's outstanding external debt?

A: In 2017, the growth in China's outstanding external debt was primarily driven by the stable macro economic performance and the yielding of policy dividends. On the one hand, China witnessed stable economic development with strong momentum for growth and steady increase in economic development indicators. China's GDP for 2017 hit RMB 82.7 trillion, up by 6.9% year on year; imports and exports totaled RMB 27.8 trillion, up by 14.2% year on year; the two-way fluctuations of RMB exchange rate were more resilient, with RMB exchange rate expected to stay stable. All of these are the basic drivers of the growth in China's external debt. On the other hand, a wealth of reformative measures were introduced, enhancing the facilitation of cross-border financing by domestic players. In the year, the People's Bank of China (PBC) and the SAFE stepped up their efforts to improve the macro-prudential administration policy for full-scale cross-border financing, actively supporting financial institutions and enterprises to carry out cross-border financing in domestic and foreign currencies on their own and enabling domestic institutions to expand financing channels and reducing financing costs by making full use of the two markets and two types of resources. Moreover, the inter-bank bond market was more liberalized. In particular, the Bond Connect between the mainland and Hong Kong opened the domestic financial market wider to foreign investors, arousing foreign institutions' interest in holding more domestic bonds, and as a result, the domestic bonds they hold kept rising.

Going forward, the PBC and SAFE will implement the requirement of improving the framework of regulation underpinned by monetary policy and macro-prudential policy, which was proposed at the 19th CPC National Congress. They will improve the macro-prudential administration policy with focus on bank and short-term capital flows, and make full use of its roles in counter-cyclical adjustment. While effectively preventing risks, they will step up efforts to serve the real economy and promote sustainable and healthy economic development.