China’s external debt posted the first quarterly rise during the second quarter of this year, since the same period a year ago, suggesting that the Chinese corporates have gone through the most painful period of external debt deleveraging.

The country’s outstanding foreign debt settled at USD1.39 trillion at the end of June, up 2 percent from a quarter earlier, data released by the State Administration of Foreign Exchange (SAFE) said in a statement on Wednesday. The increase reversed a falling trend seen since the second quarter of 2015. On a quarterly basis, the debt dropped 3.6 percent at the end of March and declined 7.4 percent at the end of 2015.

This will not only reduce pressure on the CNY to depreciate, but also indicate that the capital outflows from China will be easing somewhat. However, the Chinese corporates prefer to hold USD at this moment as they are concerned that the authorities could further tighten the measures on FX conversion. Clearly, this implies the implicit costs of administrative measures are extremely high, Commerzbank reported.

Analysts had attributed the previous downward movement to a strengthening dollar, which encouraged Chinese firms to speed up repaying their dollar-denominated liabilities. The SAFE predicted foreign debt to stabilize further as authorities take measures to improve borrowing overseas.

Meanwhile, a majority of China's foreign debt owed to foreign creditors results from short-term borrowing, while long- and medium-term outstanding external debt accounted for 38 percent, data showed.