After a series of high-profile bond defaults shocked international investors, local Chinese governments are racing to launch multi-billion-dollar bailout funds to bail out state-owned enterprises.
Public records show that since the end of last year, six provinces in China have pledged at least 110 billion yuan (US$17 billion) to these funds. Cash crunch Among debt-laden state-owned enterprises, the local economy has been hit.
The wave of defaults, including companies such as Yongcheng Coal and Electricity Holding Group, has plunged the economy of central Henan into crisis. Missed the 1 billion yuan debt repayment Last year, it stopped paying some of its 180,000 workers.
“Because a state-owned enterprise failed to pay the bonds on time, the entire province’s economy suffered losses,” said a Henan official who launched the relief fund in April.
Although the Chinese economy has always been Restore first Since the beginning of the Covid-19 pandemic, the rebound in some provinces that rely on state-owned industries has not been complete.
The total amount of non-performing bonds issued by state-owned enterprises last year was 119 billion yuan, the highest level since China began allowing state-owned enterprises to default in 2014, and higher than the 22 billion yuan in 2019. Worried investorHe previously believed that bonds would be supported by the state.
The increase in provincial relief funds marks the latest effort by local Chinese authorities to restore creditors’ confidence.But analysts warned that the strategy may worsen China’s debt backlog, They described it as a time bomb for the world’s second largest economy.
“The purpose of the bailout funds is to send a message to the market that once problems arise, the government will step in,” said Zhang Pan, head of research at Raman Capital, a Shanghai asset management company. “They will not let poorly managed state-owned enterprises become better-run enterprises.”
Although China survived the recession in the 1990s by closing tens of thousands of loss-making state-owned groups, Beijing is reluctant to do so again.
President Xi Jinping regarded state-owned enterprises as the “fortress of the economy”, while former prime minister Zhu Rongji adopted the method of “retaining the large and letting go of the small” in the 1990s to deal with the collapse of state-owned enterprises.
Hebei, a heavily indebted northern province, was the first province to establish a rescue tool. In September, it launched a RMB 30 billion state-owned enterprise “Credit Guarantee Fund”.
As of the end of May, Jizhong Energy, a troubled state-owned enterprise in Hebei Province, had drawn 15 billion yuan from the provincial credit guarantee fund, equivalent to three-quarters of its income last year, to repay the principal and interest of the bonds.
“After the bailout, our liquidity problems have been greatly eased,” a Jizhong executive said, adding that the group is still in a highly leveraged state and will apply for another 15 billion yuan from the Hebei Credit Guarantee Agency in the next few months. RMB.
Most of the funding for these funds comes from other companies controlled by local authorities. In Henan Province, 26 state-owned enterprises ranging from coal mines to copper processors provided CGF with RMB 30 billion in seed funding.
“When external funds dries up, the provincial government wants us to help each other,” said an executive of Pingmei Shenma Group, an energy group and shareholder of Henan CGF.
After the Yongcheng Coal Industry defaulted, the amount of bank loans issued by banks in Henan fell by 10% in the first half of the year, while the amount of bank loans nationwide increased by 6%.
At the same time, official data shows that in the first six months of this year, the province’s net corporate bond financing-new bond issuance minus interest on existing bonds plus principal payments-minus RMB 20.1 billion. This compares to 71 billion yuan a year ago.
Henan’s credit crunch persuades Beijing to start Put pressure on local authorities Helping state-owned enterprises in trouble. Therefore, only one company defaulted on bond payments this year. But investors still worry about the lack of reforms in troubled state-owned enterprises.
“The government has no long-term plan to turn bad state-owned enterprises into good ones,” said an adviser to the Hebei Provincial SASAC, the state-owned enterprise regulator. “Its first task is to survive the short-term liquidity crisis.”
State-owned banks, the largest credit provider, are also cautious.
“The scale of rescue funds is too small to meet the funding needs of many state-owned enterprises that are under financial constraints,” said a risk management official at a top bank in the country. “We need to prioritize performance over local interests.”
In Hebei, an executive of a local CGF shareholder stated that the company’s decision to pay the bailout fund was motivated by political considerations, not commercial considerations.
“We don’t expect investment to bring market returns,” the official said.