The amount of short-term foreign debt that China owes rose a mere 1.7 percent in the fourth quarter, data showed on Thursday, a reflection that the authorities have been able to keep speculative bets on yuan appreciation in check. China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), said China owed $548.9 billion worth of foreign debt at the end of 2010, up a touch from the $546 billion owed at the end of the third quarter.
Short-term debt stood at $375.7 billion, or 68.4 percent of all foreign debt, up slightly from the $369.4 billion owed at the end of the third quarter. Although the Chinese government often describes hot money as a problem of foreign speculators, the short-term debt data is an indication of how Chinese firms are often the ones betting on a stronger yuan. By borrowing foreign currency for short durations, they hope to make money by repaying the loans more cheaply after the yuan rises.
Worried that speculative inflows could add even more excess cash to the economy and fuel inflation, Chinese authorities have tried to clamp down on speculators by tightening capital controls. It ordered banks on Wednesday to cut their short-term foreign debt holdings and reduce their bets against the dollar.
China's official foreign exchange reserves are more than five times bigger than the total foreign debt it owes, underlining the strength of its external position. As such, mild increases in its foreign debt barely register in markets. The SAFE said its preliminary data showed that China's ratio of short-term debt to foreign exchange reserves was 13.19 percent, which was very safe by international standards.
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