China needs unified external debt management

External debt refers to local-currency and foreign-currency borrowings of domestic institutions from non-residents. According to the World Bank definition and the International Monetary Fund, external debt is, at any given time, the outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to non-residents by residents of an economy. Since its opening up, China has actively used external debt to give play to the advantages of international market funds and expand the sources of domestic construction funds, which play an important role in promoting economic and social development. According to the State Administration of Foreign Exchange (SAFE), China’s external debt balance stood at US$15.8 billion in 1985 and grew to US$1,843.5 billion as of the end of March 2018.

Over the years, China has strictly managed its external debt, controlled its scale and maintained a reasonable external debt structure. As a result, the national external debt risk is generally controllable. However, the non-unified external debt management, imperfect external debt legislation, policies and regulations of various sources, and China’s current scattered management authorities are not seen as conducive to the effective use of external debt and the control of related risks. Many countries have historically experienced debt crises, which even evolved into international financial crises. Mostly, such crises stemmed from the excessive related risks and imperfect management of external debt. The international financial market has recently been in turmoil and emerging-market countries like Turkey are caught in a currency crisis, which is also related to the excessive ratio of external debt. In view of this situation, the Bank for International Settlements has been conducting research on external-debt management.

Zhang Lei is a partner at Jingtian & Gongcheng