China says debt risks in centrally-owned firms overall under control

BEIJING, REUTERS -- Debt risks in China's centrally-owned enterprises are under control overall, the state asset regulator said on Thursday, adding that authorities will rein in corporate debt risks and strengthen management of company investment and capital expenditure.

China is trying to streamline and modernize its bloated and debt-ridden state-owned sector and create conglomerates capable of competing globally, without risking mass layoffs or a blow to economic growth.

The reforms have involved the restructuring of SOEs through reorganizations and mergers, reductions in excess capacity and the relocation of workers, though some analysts say much more needs to be done, especially to address high debt levels.

"China will also step up efforts to increase direct financing at the central government-owned firms through ways such as private placement and mixed-ownership reform to push forward with deleveraging," an official from the State-owned Assets Supervision and Administration Commission (SASAC) told in a press conference in Beijing.

Beijing is also pushing ahead with mixed ownership by allowing private capital to invest in firms while retaining the government's presence in the companies.

Beijing expects such diversification of corporate structures to take off in the second half of this year.

Value of debt-to-equity swaps in China's central government-owned firms have exceeded 440 billion yuan ($66.79 billion), the regulator also said.

The government has vowed to tackle high leverage in the economy as it launched a sweeping campaign to crack down on riskier types of financing, but its high debt levels have led credit ratings agencies, including S&P Global Ratings, to cut the country's sovereign credit rating.

S&P downgraded China's sovereign rating in September, saying its attempts to reduce debt risks are not working as quickly as expected and credit is still expanding too fast.

The asset-liability ratio of centrally owned firms was at 66.5 percent at the end of September, down 0.2 percentage point from the beginning of 2017, SASAC data showed.

Profits of China's central government-owned firms rose 18.4 percent year on year to 1.11 trillion yuan ($168.60 billion) in the first nine months this year.

The 2017 annual target for steel capacity cut at centrally-owned firms has been fullfilled ahead of time and coal capacity has been cut by 23.88 million tonnes as of end-September.

The world's top coal consumer and steel maker has launched a campaign to shut down substandard steel output in its war on pollution and industrial overcapacity. It pledged to cut steel capacity by 50 million tonnes and coal output by more than 150 million tonnes this year.

Fixed asset investment made by centrally-owned coal firms fell 33.5 percent on year in the first three quarters, while steel firms' investment dropped 19.3 percent over the same periods.

Fixed asset investment by centrally-owned coal-fired power plants plunged 21 percent year on year in the January-September period.