Pengyuan International Affirms ‘A’ Rating to the Provincial Government of Jilin; Outlook Stable


17 Sep 2021

    HONG KONG, 17 September 2021. Pengyuan International has affirmed the global scale long-term foreign-currency issuer credit rating (ICR) of ‘A’ for the Jilin provincial government and aligned the long-term local-currency ICR with its foreign-currency ICR as ‘A’. The outlook is stable. The ICR reflects the province’s nicely growing budgetary revenue and favourable liquidity conditions, as well as its weaknesses in economy and exacerbating debt burden.

    Jilin is an inland province in northeastern China (AA, stable) bordering Russia and North Korea. The province covers an area of 187,400 square kilometres, accounting for 1.94% of China’s land area. It had a total population of 24.1 million at the end of 2020, about 1.7% of the country’s population.

    CREDIT SUMMARY

    Credit Strengths

    Rapid growing budgetary revenue has rejuvenated the province’s budgetary strength. Undeterred by the impact of the coronavirus pandemic, Jilin’s budgetary revenue increased 16.4% in 2020, driven by the steadily reinforcing fiscal support from the central government and more importantly, the surging government fund revenue. As such, the budgetary balance to revenue ratio of the province managed to rise from -20% in 2019 to -17.7% in 2020. It is expected to remain stable in 2021, indicating that the province is running a gently attenuating deficit.

    We predict Jilin will possess sufficient liquidity over the next 12 to 24 months. The government had a fiscal deposit of RMB65 billion at the end of 2020, a decent scale relative to its debt service. Besides, despite having a heavy debt burden on its economy, we believe Jilin has not stretched its financing capacity to an extreme. It will maintain a certain level of fund market access in the next two years. Our calculations show that the liquidity coverage ratio of Jilin will be 168% and 178% in 2021 and 2022 respectively.

    Credit Weaknesses

    In our view, Jilin’s economic development has been hindered by an obsolete economic structure, ineffective systems and dwindling population, evidenced by many years of slower GDP growth than that of the nation. An exception has occurred due to its economy’s heavy reliance on the automobile manufacturing industry. In 2020, despite the coronavirus pandemic outbreak, the rapid recovery of automobile industry helped the province to register an economic growth of 2.4%, outpacing the national growth for the first time over the past four years. However, this is likely to be a one-off economic boost. In an absence of a sound economic structure and vibrant businesses, Jilin’s economic growth should remain sluggish against most of its peers over the next few years.

    The province has quickly piled on debt to fuel its budgetary expenditure and fiscal investment, and the double-digit debt growth has been weighing on the province’s slowly expanding economy. We estimate the broad debt of Jilin could be around RMB761 billion, posing a substantial pressure on the province’s economy with a debt to GDP ratio of 62% in 2020. Moreover, we expect this ratio to increase further over the next few years, as the funding needs for the province’s fiscal expansion remain intense.

    Note: Ratings mentioned in this press release are unsolicited ratings.

     

    ANALYST CONTACTS

    Primary Analyst

    Jameson Zuo, FRM

    +852 3615 8341

    jameson.zuo@pyrating.com

    Secondary Analyst

    Ke Chen, PhD

    +852 3615 8316

    ke.chen@pyrating.com

    Committee Chair

    Vincent Ha, CFA

    +852 3615 8307

    vincent.ha@pyrating.com

    MEDIA ENQUIRIES 

    Ms. Charley Lui 

    Direct+852 3615 8296

    charley.lui@pyrating.com

    RATING SERVICES ENQUIRIES

    Mr. Allen Wei

    Direct+852 3615 8324

    allen.wei@pyrating.com

    Date of Relevant Rating Committee: 20-Aug-2021

    Additional information is available on www.pyrating.com

    Related Criteria

    Chinese Local Government Rating Criteria (29 June 2021)

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