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Rated SOEs' leverage to fall in 2018: Moody's

2018-01-09

Although China's State-owned enterprises (SOEs) will continue to see their leverage decline in 2018, more efforts should be made to enhance the quality of their assets, an expert told the Global Times on Monday.  

Moody's Investors Service said that two-thirds of the 53 Chinese SOEs rated by the credit rating agency will show lower leverage in 2018 compared to 2016, which is underpinned by the central government's reforms, the agency said in a report sent to the Global Times on Monday.

The SOEs rated by Moody's operate in sectors such as steel, mining, agriculture and business services.

China's supply-side reform has reduced overcapacity in commodity sectors since 2016, which will benefit SOEs such as China Baowu Steel Group Corp and China Shenhua Energy Co, the report said.  

"The supply-side reform has contributed to price rallies in some commodities such as coal and steel, which reflected progress we've made in tackling the capacity glut," said Feng Liguo, an expert at the China Enterprise Confederation, a think tank that closely advises the State-owned Assets Supervision and Administration Commission (SASAC).

China will achieve its target for reducing the capacity glut in 2018, the official People's Daily reported on Monday. In 2017, the nation phased out 150 million tons of coal and 50 million tons of steel capacity, and achieved its annual target in advance, the report noted.

While prices for commodities in 2018 may be lower than the average for 2017, the SOEs' cost savings, capital spending cuts and more conservative financial policies will enable them to continue deleveraging through 2018, Moody's said.

The high debt ratios at SOEs came in the aftermath of China's stimulus package for economic growth unveiled in 2008, noted Feng.

"In line with reforms, some industries have carried out measures such as boosting efficiency and spinning off nonperforming assets," he said.

The profits at SOEs grew 23.5 percent year-on-year from January to November 2017, reaching 2.6 trillion yuan ($400 billion), according to SASAC in December.

The mixed-ownership reforms at SOEs will be accelerated this year, Feng noted. "As a way to push forward the reform, some private companies have been allowed to take part in SOE projects via the public-private partnership (PPP) model."

The Chinese government has called for more private investment across the economy, as SOEs have crowded out private sector participation in some PPP projects, Reuters reported in November 2017.

"However, [the central government] should take the potential shift in debts from SOEs to the private sector into account," Feng said.

Source:Global Times