Central enterprise debt risks under control

Huang Yixuan
China responds to concerns over the increasing number of bond defaults by some local state-owned enterprises, saying they are attributable to multiple factors.
Huang Yixuan

China has reiterated that the debt risk of central enterprises is generally under control in response to concerns over the increasing bond defaults of some local state-owned enterprises.

The higher number of local SOEs having defaulted on their debts should be attributed to multiple factors, including external factors such as the impact of COVID-19 and market fluctuations, as well as internal factors such as enterprises growing blindly and poor management, according to Peng Huagang, secretary general of the State-owned Assets Supervision and Administration Commission.

To ease investors' concerns over SOE bond defaults, the commission pledged to promote the long-term healthy development of the financial market.

It committed that all violations, including fraudulent issuance, false disclosure, maliciously evading debts, should be severely punished, and investors’ legitimate rights and interests must be protected. 

"Only when the government practically implements strict supervision, the issuing enterprises assume the primary responsibility, and the investing institutions improve the pricing ability of risky assets, can they jointly safeguard the financial ecology and the credit environment," Peng said.

He also noted that although the default rate of SOE bonds had increased recently, it was still below the market's average level, and the default risk was generally controllable.

Central enterprises, meanwhile, had never defaulted on their bonds in recent years.

Despite last year’s difficulties, central enterprises had successfully fulfilled the target of “reducing the three-year asset-liability ratio by 2 percentage points” set by the State Council. The average debt ratio dropped to 64.5 percent, a relatively healthy and safe level.

Hao Peng, director of the SASAC, said it will promote the net profit and total profits of central enterprises to grow at a faster pace than the national economy in 2021.

It will also raise the profit rate of operating income, increase the intensity of investment in research and development, and boost the productivity of all employees, while keeping the balance sheet ratio stable and controllable.

It is ensured that at least 70 percent of the three-year tasks of the SOE reform will be completed by the end of this year.

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