Caution cuts back overseas lending

The mainland's official foreign borrowings slowed sharply in the 12 months to June as the international banking community tightened lending following several high-profile failures by mainland companies to repay back loans.

As of June 30, foreign debt rose 7.8 per cent year on year to US$148.77 billion, compared with the growth rate of 16.3 per cent in the previous comparable period, according to data from the State Administration of Foreign Exchange (SAFE).

In the first six months of this year, the debt had risen 1.9 per cent, or $2.73 billion, compared with the growth rate of 5.3 per cent in the first half of last year, Xinhua news agency reported yesterday.

Analysts said the sharp slow-down largely stemmed from foreign banks' cautious lending to mainland entities following the collapse of Guangdong International Trust and Investment Corp and revelation of financial troubles surrounding Guangdong Enterprises (Holdings), the investment arm of the Guangdong provincial government.

At present, just the finance ministry and a few other mainland financial institutions bearing sovereign or quasi-sovereign risks can manage to raise money on the international debt markets.

SAFE figures show medium- and long-term debts amounted to $131.67 billion, accounting for 88 per cent of the total and $2.97 billion higher than the end of last year.

The outstanding short-term debt was $17.1 billion, a decrease of $240 million from the end of last year.

In the first half of this year, the mainland borrowed $13.5 billion - compared with $24.89 billion in the same period last year, while repaying $12.19 billion principal and interest.

Of the debt, $42.97 billion was sovereign debt, up 3.2 per cent from the end of last year. Domestic financial institutions had borrowed $41.96 billion, unchanged from the end of last year.

The outstanding debt also included $47.13 billion borrowed by foreign-invested enterprises, up 4.2 per cent, and $14.96 billion by domestic enterprises, down 3.5 per cent, SAFE said.

Mainland foreign borrowings have been prudent, with most debt indicators below the international standards.

ECONOMY