G.F. 326
CONFIDENTIAL # 2
15
direct investment. For 1986 alone, the volume of foreign
loans arranged amounted to US$6.93 billion, of which US$4.83 billion had already been utilised by the end of
the year.
At the end of June 1987, the state's
outstanding foreign debt amounted to US$8.3 billion. If
utilised direct foreign investment is included, China's total external liability amounts to over US$20 billion.
27.
In view of the rapid accumulation of foreign
debt in recent times, the PBOC has adopted an even more
cautious attitude towards its foreign exchange reserve position. However, considering that China's debt-service
ratio (i.e. annual interest charges as a proportion of the
total export earnings in the same year), at around 7%, is still not very high, the Chinese central bankers should
not be unduly worried. The position is, however, less favourable if the obligation for repayment of principal is included. The debt repayment problem is likely to become more acute by the beginning of the next decade as China begins to repay its loans from other governments and from international agencies. Thus it is likely that the PBOC
will have to take steps to prevent bunching of debt
repayments. With a view to establishing a better system
to monitor China's external debt situation, in August
1987, the SAEC promulgated a set of provisional
regulations for the reporting and supervision of external
debts incurred by enterprises and financial institutions
in China.
28.
With regard to fund-raising strategies it
appears that the Chinese authorities will have to devote
more attention to the management of exchange rate risks,
in addition to their usual concerns about the interest
cost and the terms of repayment. China's experience with
the loans denominated in Yen illustrates this point
clearly.
CONFIDENTIAL # 3
Page 210Page 211
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