HONG KONG, 3 August 2020. Pengyuan International has today published a research report, “Debt analysis of prefecture-level city local governments in Zhejiang and Jiangsu provinces”. Our research focuses on the government debt (including direct debt and hidden debt) of 11 prefecture-level local governments (LGs) in Zhejiang province (AA-/Stable) and 13 prefecture-level LGs in Jiangsu province (A+/Stable), and we demonstrate the debt burden and debt features of these prefecture-level city LGs. The key takeaways from this report are as follows:
We believe these prefecture-level city LGs as a whole have strong ability to support debt repayment, backed by their advanced economy and solid budgetary revenue. Our calculation shows that debt ratios of most of the prefecture-level LGs in the two provinces were lower than the nation-wide local governments' average in 2019.
In our view, the variance of debt level among Zhejiang's prefecture-level LGs to be smaller and their overall debt level to be lower than the peers in Jiangsu province. Based on our calculation, the average broad debt-to-revenue ratio of Zhejiang's prefecture-level LGs was 110% in 2019, 56 percentage points below that of Jiangsu. The city of Suzhou in Jiangsu province had the lowest government debt level, whereas the city of Zhenjiang in the same province had the highest among all LGs in these two provinces. The variance range of debt ratio of Jiangsu’s prefecture-level LGs is 104 percentage points higher than that of Zhejiang.
Our assessment reveals that hidden debt accounted for more than half of the broad debt in most of the prefecture-level LGs in Jiangsu, whose hidden debt burden were generally heavier than their peers in Zhejiang. Both the average hidden debt-to-total debt ratio and the average hidden debt-to-budgetary revenue ratio are higher in Jiangsu's LGs than those of Zhejiang’s LGs in 2019.
We believe the debt growth varies larger among prefecture-level LGs in Zhejiang than in Jiangsu and we also see higher growth in debt-to-GDP ratio in the cities of Zhejiang. Based on our calculation, when normalized by GDP, the city of Zhenjiang in Jiangsu would have the highest direct debt growth during the 2017-2019 period among all prefecture-level LGs in the two provinces, whilst the city of Zhoushan in Zhejiang would have the highest growth of hidden debt-to-GDP ratio. Overall, the increase of debt-to-GDP ratio are not only higher on average but also diverged more greatly among prefecture-level LGs in Zhejiang province than those in Jiangsu province.
Our calculation shows that both average maturity of newly issued LG bonds and average residual maturity of outstanding LG bonds in Jiangsu province were lower than those of Zhejiang province. The average maturity of newly issued LG bonds has increased materially in both Zhejiang and Jiangsu provinces over the past five years and is clearly longer in Zhejiang than that in Jiangsu. We believe such longer new issuance maturity is mainly a result of relaxed issuance policies in place. In general, the stronger budgetary strength an LG has, the longer bond maturity is. However, LGs often have the flexibility in determining their bond issuance maturity based on their own needs. In terms of the residual maturity of existing bond outstanding, as of June 2020, Jiangsu is clearly shorter than Zhejiang and the nation-wide average.
Note: In case of any discrepancies between the English version and the Chinese version, the Chinese version shall prevail.
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Date of Relevant Rating Committee: 09-July-2020
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