China's external debt totalled a whopping $695 billion last year, highest in 27 years, adding to concerns that it might undermine the country's fiscal position at a time when its economy has slowed down due to declining exports.
The external debt rose by $146 billion, or nearly 27% from 2010, data released by the State Administration of Foreign Exchange (SAFE) said.
The proportion of short-term external debt to the total also climbed to a record high of 72% as of December 31, in contrast to 68% in 2010 and 60% in 2009, SAFE data said.
But the year-on-year increase in short-term debt moderated. As of 2011 end, outstanding short-term debt stood at $500.9 billion, up 33%. The growth rate was nearly 12 percentage points lower than in 2010.
The jump in foreign debt shows that China, which lends more than it borrows, is borrowing more from overseas to hedge against the devaluation of its foreign exchange reserves, analysts said.
Meanwhile, enterprises on the Chinese mainland have resorted to borrowing from overseas due to financing difficulties at home, they added.
As the yuan has strengthened against other currencies, the value of China's foreign exchange reserves has shrunk, Li Jian, a research fellow from the Chinese Academy of International Trade and Economic Cooperation from the Ministry of Commerce said.
According to SAFE, the Yuan has risen 13.69% against the US dollar since the beginning of 2008.
The Yuan appreciation also had adverse impact on China's foreign exchange reserves of $3.20 trillion, highest in the world. As a result, the value of the Chinese government's dollar-denominated assets has fallen, Li argued.
Borrowing in dollars allow the government to offset some of those losses because it would effectively have to pay less when the loans come due if the yuan continues to strengthen, Li told state run Global Times.
Also, the Chinese business enterprises have become more reliant on borrowing from abroad due to soaring costs of domestic financing, Zhang Yugui, dean of the College of International Finance and Trade at Shanghai International Studies University said.
