Moody’s ups out­look for 22 gov­ern­ment-re­lated in­sur­ers to sta­ble

China Daily (USA) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

Rat­ing agency Moody’s changed from neg­a­tive to sta­ble the out­looks on 22 Chi­nese gov­ern­ment-re­lated in­sur­ers and rated GRI sub­sidiaries.

Also, an­a­lysts said they see ev­i­dence that the gov­ern­ment’s Sta­te­owned en­ter­prise re­form ef­forts will not re­sult in less sup­port for SOE en­ti­ties in es­sen­tial public ser­vices and strate­gic sec­tors in the medium term.

Dur­ing a press brief­ing on Tues­day in Shang­hai, an­a­lysts said that rat­ings out­look changes are driven by the sup­port level of pol­icy mak­ers, the gov­ern­ment’s abil­ity to pro­vide sup­port di­rectly or in­di­rectly and the com­pa­nies’ own credit pro­files.

In March 2016, Moody’s changed the out­looks of th­ese en­ti­ties to neg­a­tive due to con­cern that the con­tin­u­ing growth in the con­tin­gent li­a­bil­i­ties of the gov­ern­ment’s bal­ance sheet could re­sult in sup­port be­ing a lower pri­or­ity and re­duced over time for all SOEs.

How­ever, there is now ev­i­dence sug­gest­ing the con­trary. That is, the gov­ern­ment’s re­form ef­forts will not re­sult in a diminu­tion of sup­port for the GRIs which had their rat­ings out­looks changed to­day to sta­ble, ac­cord­ing to Gary Lau, a Moody’s Man­ag­ing Di­rec­tor.

For ex­am­ple, in Septem­ber, the Min­istry of Fi­nance and the Sta­te­Owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion is­sued a joint doc­u­ment stat­ing that the gov­ern­ment will con­cen­trate its in­vest­ments and sup­port for SOEs on those that fo­cus on na­tional se­cu­rity and es­sen­tial public ser­vices, aim­ing to boost stan­dards and eco­nomic de­vel­op­ment.

“What pol­icy mak­ers have said and done is more ‘vis­i­ble’ and tan­gi­ble to an­a­lysts who can see solid ev­i­dence that pol­icy sup­port for com­pa­nies in th­ese sec­tors is un­likely to change over the medium term,” saidHu Kai, se­nior vice-pres­i­dent of Moody’s In­vestors Ser­vice.

Th­ese 22 en­ti­ties, which in­clude China State Con­struc­tion En­gi­neer­ing Cor­po­ra­tion, China Rail­way Group Ltd, CRRC Zhuzhou Lo­co­mo­tive Co Ltd, and Shang­hai Elec­tric Co Ltd, all fall within the broad cat­e­gories for which the gov­ern­ment re­mains sup­port­ive and are seen as im­por­tant in as­sist­ing the im­ple­men­ta­tion of strate­gic na­tional pol­icy goals.

On­the other hand, there has been a grad­ual re­duc­tion in sup­port for less prom­i­nent en­ti­ties op­er­at­ing in com­mer­cial in­dus­tries, par­tic­u­larly those suf­fer­ing from over­ca­pac­ity and fierce com­pe­ti­tion, namely coal, steel, met­als, min­ing and chem­i­cals, said an­a­lysts.

Seven GRI de­fault cases re­viewed byMoody’s in the last 12 months all fell in th­ese cat­e­gories, said Cle­ment Wong, as­so­ciate man­ag­ing di­rec­tor with­Moody’s In­vestors Ser­vices.

How­ever, as China is re­duc­ing over­ca­pac­i­ties in cer­tain com­mer­cial in­dus­tries such as coal-min­ing, steel­mak­ing and chem­i­cals in an “or­derly” man­ner, it is un­likely for the mar­ket to see a big num­ber of de­faults of gov­ern­ment-re­lated in­sur­ers in th­ese in­dus­tries in the near fu­ture, ac­cord­ing toHu.

What pol­icy mak­ers have said and done is more ‘vis­i­ble’ and tan­gi­ble to an­a­lysts...” Hu Kai, se­nior vice-pres­i­dent of Moody’s In­vestors Ser­vice

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