The Chinese central government has issued a new directive calling for a marked reduction in the debt-asset ratios of China’s state-owned enterprises (SOE’s) by the end of the decade.
The State Council recently issued the “Guidance Opinions on Strengthening State-owned Enterprise Asset-Debt Restraints” (关于加强国有企业资产负债约束的指导意见), calling for the “establishment and improvement of restraint mechanisms on the debt-asset (ratios) of SOE’s…[and] expediting a return to rational debt-asset ratios for heavily indebted SOE’s as soon as possible.”
The Opinions set a target of a 2 percentage point reduction in the average debt-asset ratio of SOE’s by 2020 compared to 2017, with ratios to subsequently be kept at roughly the average for enterprises of the same scale in the same industry.
The Opinions also outline the setting of different debt-asset benchmarks for SOE’s based on industry, subject to dynamic adjustment in future.
Zhou Lisha (周丽莎), a researcher with the State-owned Assets Supervision and Administration Commission (SASAC), said to Securities Daily that one of the chief “bright spots” of the new opinions is its integration of short-term and long-term debt-asset targets.
According to Zhou in addition to continuing to deleverage SOE’s, Chinese regulators should also apply curbs to debt ratios and form long-term mechanisms for the prevention of SOE debt risk.
Zhou points out that SASAC previously issued the “Central SOE Debt-Asset Ratio Category-based Administration and Control Plan” (中央企业资产负债率分类管控工作方案) which set a range of targets based on industry.
Last year’s standards included an “early warning threshold” of 65% for the debt-asset ratios of industrial SOE’s and 70% for industrial SOE’s on the “key regulatory line” (重点监管线为).
For non-industrial SOE’s the benchmarks were 70% and 75% respectively, while for scientific and technological research SOE’s they were 60% and 65%, and for SOE groups they were 65% and 70% for their consolidated reports.