SOE debt in crosshairs as qual­ity boost be­comes tar­get

China Daily European Weekly - - Front Page - By HU YONGQI huy­ongqi@chi­

Bet­ter man­age­ment and su­per­vi­sion of as­sets and li­a­bil­i­ties moves to the front line of change

The av­er­age debt-to-as­set ra­tio for State-owned en­ter­prises will be re­duced by 2 per­cent­age points by the end of 2020 com­pared with the end of last year, amid the delever­ag­ing cam­paign to guard against ma­jor risks.

The goal was dis­closed in a guide­line, re­leased on Sept 13 by the gen­eral of­fices of the Com­mu­nist Party of China Cen­tral Com­mit­tee and the State Coun­cil, China’s Cab­i­net, to strengthen as­set and li­a­bil­ity con­straints on SOEs. The guide­line cov­ers SOEs in all in­dus­tries.

Af­ter that, the SOE debt-to-as­set ra­tio should be kept at the av­er­age level of all com­pa­nies in the same in­dus­try, ac­cord­ing to the doc­u­ment. SOEs with high debt should lower the debtto-as­set ra­tio to a rea­son­able level within a pre­set time limit.

The pre­vi­ous year’s in­dus­try av­er­age ra­tio will be the bench­mark for SOE lever­age as­sess­ment for the next year. SOEs will be alerted if their ra­tio is 5 per­cent higher than the av­er­age, and those with a ra­tio 10 per­cent higher than av­er­age will be placed un­der strict su­per­vi­sion, it said.

The doc­u­ment also set a clearly de­fined bound­ary to sep­a­rate lo­cal from cor­po­rate debt, and lo­cal gov­ern­ments are pro­hib­ited from bor­row­ing via SOE plat­forms.

The doc­u­ment was the lat­est move to delever­age SOEs. In April, a meet­ing of the Cen­tral Com­mit­tee for Fi­nan­cial and Eco­nomic Af­fairs de­cided that lo­cal gov­ern­ments and en­ter­prises, es­pe­cially SOEs, should take im­me­di­ate ac­tion to re­duce their debt.

On July 31, the Po­lit­i­cal Bureau of the CPC Cen­tral Com­mit­tee de­cided to in­te­grate guard­ing against ma­jor risks with serv­ing the real econ­omy, with a re­quire­ment for ef­fec­tive re­duc­tion in SOE debt.

Zeng Gang, a re­searcher at the Fi­nan­cial In­sti­tute of the Chi­nese Academy of So­cial Sciences, said many mea­sures in the guide­line were be­yond mar­ket ex­pec­ta­tions and tar­geted the dif­fi­cult parts of SOE delever­ag­ing.

Joint con­straints were laid out for SOEs, State-as­set man­age­ment de­part­ments and fi­nan­cial in­sti­tu­tions to in­crease the ef­fec­tive­ness and fea­si­bil­ity, he said.

Since the in­ter­na­tional fi­nan­cial cri­sis in 2008, the SOE lever­age has been 5 to 10 per­cent­age points higher than pri­vate busi­nesses, said Liu Xiaoguang, a pro­fes­sor at the Na­tional Academy of Devel­op­ment and Strat­egy at Ren­min Univer­sity of China.

Ac­cord­ing to the Na­tional Bureau of Sta­tis­tics, the debt-to-as­set ra­tio was 56.6 per­cent for in­dus­trial en­ter­prises with an­nual rev­enue of more than 20 mil­lion yuan ($2.94 mil­lion; 2.50 mil­lion euros; £2.22 mil­lion) at the end of July, 0.5 per­cent­age points lower than the same pe­riod last year. The ra­tio for State-con­trolled en­ter­prises was 59.4 per­cent, 1.3 per­cent­age points lower than the pre­vi­ous year.

In the mean­time, SOEs achieved about a 25 per­cent in­crease in prof­its last year, 4.3 per­cent­age points higher than the av­er­age for in­dus­trial-sec­tor en­ter­prises. Liu said in­vest­ment ef­fi­ciency has been fall­ing in re­cent years, and delever­ag­ing SOEs should be a pri­or­ity.

Liu wel­comed the mea­sures taken to pre­vent lo­cal gov­ern­ments from rais­ing hid­den debts via SOE plat­forms.

Li Shi­gang, a re­searcher at the China Academy of Macroe­co­nomic Re­search, said goals and tar­gets were dis­closed to ef­fec­tively build as­set and li­a­bil­ity con­straints. The guide­line made clear a timetable and mis­sions for SOEs to re­duce debt and is ex­pected to en­sure most SOE debt-to-as­set ra­tios re­turn to in­dus­try av­er­ages, he said.

Liang Zhib­ing, a doc­tor­ate holder at the China Academy of Macroe­co­nomic Re­search, said the mea­sure can delever­age SOE debt in the short run and re­strain their lever­age from bounc­ing back in the long run. Liang said the guide­line re­quires SOEs to re­duce lever­age through SOE re­form and in­creas­ing eq­uity fi­nanc­ing, which will force these en­ter­prises to trans­form their mod­els and deepen self-re­form to build a long-term mech­a­nism. Apart from fi­nan­cial and mar­ket man­age­ment mea­sures, SOEs should re­move their low-ef­fi­ciency as­sets, re­duce costs and in­crease prof­its, which can defuse their li­a­bil­i­ties and re­duce debt, said Zhou Jianqi, a re­searcher at the Devel­op­ment Re­search Cen­ter of the State Coun­cil.


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