Relook at aid for debt-laden SOEs
Print Edition
CHINA’S government is recalibrating how it helps state-owned enterprises with rising debt defaults as it seeks different approaches other than bailouts to cut overcapacity and deepen corporate reform, according an economist from Moody’s Investors Service yesterday.
Debt defaults are no longer viewed as a “forbidden zone” by the government, but a catalyst to market-oriented disposal and restructuring, said Hu Kai, senior vice president who focuses on the SOE sector at Moody’s.
As the economy remains cool the government’s attitude toward using funds to rescue such SOEs has changed, he added.
“Now the regulator tends to allow defaults to occur and then take a combination of measures including business restructuring, debt restructuring and change of management,” Hu said.
“Direct capital injection is not a long-term plan,” he added. “Even though the government has the ability to provide support, there are moral risks and pressures from the public.”
More Chinese SOEs have sought government support as they struggle with record debt redemptions amid a weakening economic growth and deepening SOE reforms.
At least 10 firms have missed local note payments so far this year, exceeding the total for all of 2015. They include electric transformer maker Baoding Tianwei Group Co, which has defaulted on a bond payment three times, and Heilongjiang Longmay Mining, a state-owned coal miner which said it would use funds from the provincial government for bond payments in December.
But market insiders argued that an annual budget of 100 billion yuan (US$15.2 billion) pledged by the State-owned Assets Supervision and Administration Commission as bailout funds is just a drop in the bucket compared to the defaults chalked up by the SOEs.
In a panel discussion of SOE liabilities, Moody’s estimated it will cost 20-25 percent of China’s gross domestic product to decrease contingent liabilities to a more manageable level.
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