SHANGHAI -- China and its regional governments have created funds to help state-owned companies guard against defaults, readying 210 billion yuan ($32.5 billion) to alleviate financing constraints.
Tianjin established a 20 billion yuan fund in June, saying it aims to raise the market's confidence in the city's state-owned enterprises. The Guangxi Zhuang Autonomous Region invited experts to a meeting in April to discuss setting up a similar fund.
The details of such assistance have not been disclosed in either case, but the regions apparently look to bolster the financial footing of state-owned businesses through steps such as helping to turn high-interest short-term loans into low-interest long-term financing. Local lenders are participating as well, defraying the burden of struggling regional governments.
Henan and Hebei provinces have both launched 30 billion yuan funds within the past year, with Yunnan Province planning a fund on a slightly larger scale. The creation of these funds comes on the heels of an example set by the central government.
In July 2020, China formed a fund with 100 billion yuan to handle potential bond defaults, backed by 31 centrally controlled companies and state-owned China Reform Holdings.
The finances of China's centrally controlled companies are generally healthy.
The same holds true for enterprises owned by regional governments across China, with finance ministry figures showing their debt ratio rising only moderately in 2020 despite the repercussions of the pandemic. Yet these companies tend to carry more external exposure, such as to the natural resources and real estate sectors.
Hebei-backed coal miner Jizhong Energy missed a bond payment in March, local media report. The company blamed a system glitch, but investors in such companies remain wary.
In March, China's State Council cabinet issued guidelines addressing the debt risk of companies owned by provinces or municipalities. The council called on regional governments to reduce the risk, citing the default fund set up by China and the centrally controlled companies as a model.
With the introduction of these funds, S&P Global said in a June 28 report that such efforts would help calm investor sentiment. But if the funds focus more on maintaining local employment and bailouts, this would serve to prop up "zombie" companies -- indebted businesses with little hope of regaining self-sufficiency -- and further delay managerial reforms at state-owned companies.
In addition to transparent rules for assistance, S&P said that the competitiveness of the companies themselves would need to improve to resolve the debt problem over the long term.