(Bloomberg) -- Chinese companies' foreign-currency debt load has shrunk significantly, reducing a key source of vulnerability as the yuan faces growing uncertainties under Donald Trump's second presidency.
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The outstanding value of Chinese firms' loans in non-yuan currencies fell to $570 billion as of the end of October, the least in 12 years, according to Bloomberg's calculations based on central bank data. The figures include borrowings by certain government-linked entities and non-bank financial institutions.
The country's foreign-currency bonds, excluding those issued by the government, now total $654 billion in principal value, the lowest since 2017, Bloomberg-compiled data show.
The plunge partly resulted from waning appetite for foreign-currency debt after a series of interest rate cuts by Beijing made local funding much cheaper, at a time when the Federal Reserve remained in its policy tightening cycle. Meanwhile, China's property-led economic slowdown also sapped demand for developers' offshore debt and weakened companies' impetus to seek global expansion.
The lighter foreign debt pile may offer some relief to the yuan, which is under increased depreciation pressures ahead of Trump's return to the White House. In a taste of what's to come, the president-elect roiled markets again this week by saying he would impose additional 10% tariffs on Chinese goods.
"This will help Chinese companies handle risks from foreign debt repayment and FX volatility after Trump takes office," said Le Xia, chief Asia economist at BBVA. Businesses will turn more cautious toward raising foreign-currency debt in the coming years with a focus on the health of their balance sheets, he added.
The loan data take into account of onshore deals handled by all types of banks and offshore lending from Chinese financial institutions. Data on loans offered by overseas banks aren't available on the Chinese central bank's website.
Cost was a big driver behind the plummeting foreign-currency loan and bond deals, thanks to the divergence of monetary policy paths between the People's Bank of China and the Fed in the past two years. As a result, the gap between US and Chinese 10-year government bond yields reached its widest level in 22 years in April, and has since narrowed marginally.