China tightens rules for state-owned firms to add foreign debt
Some state-owned enterprises must prove they are profitable and operate a clear core business to secure permission to raise new debt overseas
CHINA is making it harder for some state-owned enterprises (SOEs) to borrow overseas, expanding a campaign to rein in local government-debt risks, said people familiar with the matter.
The National Development and Reform Commission (NDRC), China’s top economic planning agency, has in recent weeks set tighter criteria, including those for profitability and business scope, for regional-level SOEs to get additional offshore debt quotas.
This was said by the people, who requested anonymity while discussing private matters.
These SOEs must prove they are profitable and operate a clear core business, such as manufacturing or mining, so as to secure permission to raise new debt overseas, said the people.
The tougher regulatory requirements mark the latest step by policymakers to get the country’s ballooning regional government debt under control.
It is also a sign that authorities are broadening the campaign, which has so far mainly targeted local government financing vehicles (LGFVs), to include the country’s financially weaker SOEs.
Chinese companies are required to apply for NDRC’s nod, for issuance of offshore debt with tenors longer than one year.
The NDRC did not immediately respond to a request for comments.
Approvals are granted on a case-by-case basis, the people said, adding that the SOEs are still allowed to refinance existing debt in the offshore market.
Some of the non-industrial SOEs are former LGFVs that have, in recent years, transformed themselves into regular state companies.
The NDRC’s tighter scrutiny is set to put them under further financial strain, removing an important channel of fundraising.
China’s leadership has labeled local government debt one of the three “major economic and financial risks” facing the country, as regions divert money away from growth-boosting projects to repay their debt.
Most of that money is tied to LGFVs, which borrow on behalf of provinces and cities to finance investment in infrastructure.
But local authorities have struggled to service those liabilities in recent years, as the property crisis slashed the land sales they relied on for revenue.
China’s Ministry of Finance has put the outstanding value of the country’s so-called hidden debt at 10.5 trillion yuan (S$1.92 trillion).
That compared with the International Monetary Fund’s estimate of more than 80 trillion yuan in broader borrowing than what’s on the government’s balance sheet. BLOOMBERG
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