China's foreign debt returns to growth in Q2

China's foreign-exchange regulator said Tuesday that the nation's outstanding foreign debt returned to growth in the second quarter as companies' deleveraging process drew to a close. Data published by State Administration of Foreign Exchange (SAFE) on Tuesday showed that China’s external debt picked up slightly by 24 bln USD in Q2 to 1389 bln USD.

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. Short-term debt was at $867.3 billion, or 62 percent of the total at the end of the second quarter, while medium-to-long-term debt stood at $522.0 billion, or 38 percent of the total, the regulator said.

The rise in the second quarter reversed a falling trend seen since Q2 of 2015. The downward movement was largely attributable to a strengthening dollar, which encouraged Chinese firms to speed up repaying their dollar-denominated liabilities.

Rising debt levels now suggesting that the Chinese corporates have gone through the most painful period of external debt deleveraging. This will not only reduce CNY depreciation pressure, but also indicate that the capital outflows from China will be easing somewhat.

The regulator predicted foreign debt to stabilize further as authorities take measures to improve borrowing overseas. It also promised better debt management and strengthened supervision of capital flow.