Rise in offshore corporate debt causes concern

Chinese companies' foreign debt is rising at the fastest pace since the Asian financial crisis in 1997, sparking worries of a credit crisis, Chen Jia reports

There's been heated debate in financial circles about the fast growth of overseas debt among Chinese companies. Some analysts suggest that the rising external debt is "a sign of desperation". They've also warned of a possible impact on global markets.

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If interest rates on dollar-denominated debt rise, these experts said, Chinese borrowers could find themselves in a financial trap, and the country could be "maxed out" in the credit markets.

Other analysts don't see a looming problem.

But the reality is that China's offshore debt has been increasing at the highest rate since the Asian financial crisis in the late 1990s.

After watching wrenching financial, currency and economic crises in neighboring countries, China clamped down on corporate borrowing abroad.

"China's external borrowing is expected to continue to expand in 2014 and 2015, although at a slower pace than in 2012 and 2013," said Stephen Green, chief economist in China at Standard Chartered Bank.

Green forecast $200 billion will be added to cross-border bank loans to China this year. Chinese companies are also set to issue about $80 billion more in tradable bonds in 2014.

The nation's external debt ratio will rise to 11.5 to 12 percent of GDP from 10 percent at present, he said.

"Offshore banks' appetite for further exposure to China's banks appears to be ebbing since many have now reached the relevant credit limits. But they are still able to sell China assets, particularly China bank assets, to others, which facilitates growth in total lending," he said.

According to the State Administration of Foreign Exchange, China's official foreign debt totaled $823 billion as of Sept 30, 2013, which was equivalent to 9 percent of GDP - a relatively small proportion in international terms.

But there have also been increases in trade credit as well as borrowing by banks in China in recent years.

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