Pengyuan International Assigns ‘A+’ Rating to the Chongqing Municipal Government; Outlook Stable


25 Jul 2022

    HONG KONG, 25 July 2022. Pengyuan International has assigned the global scale long-term foreign-currency and local currency issuer credit rating (ICR) of ‘A+’ to the Chongqing Municipal Government. The ICR reflects the city’s robust economy, solid budgetary performance, as well as its relatively heavy debt burden. The outlook is stable.

    Chongqing is located in Southwest China (AA, stable) and the upper reaches of the Yangtze River, adjacent to Hubei and Hunan in the east, Guizhou in the south, Sichuan in the west and Shaanxi in the north. Chongqing is a provincial-level administrative region and governs 26 districts, 8 counties, and 4 autonomous counties. At the end of 2021, Chongqing registered a population of 32.1 million.

    Credit Strengths

    Chongqing is the only municipal city directly under the management of the central government in the western region of China. It has unique geographical advantages and a solid industrial manufacturing foundation with an overall robust economy. Chongqing is a pivotal transportation hub in Western China that integrates water transportation, land transportation, and air transportation, and it has distinct development advantages in the "Belt and Road" strategy. Over the past few years, Chongqing has accelerated the transformation and upgrading of its economic structure. The traditional industrial base has been revitalized; the clusters of the global electronic information industry and the domestic automobile industry have been established; and the city’s technique innovation driven by big data intelligence has been further promoted. Chongqing registered a GDP of RMB 2.79 trillion in 2021, ranked fifth among all cities in China, with an 8.3% year-on-year increase. Chongqing’s GDP per capita was calculated at RMB 86,927, which was 7.2% higher than that of the national average. We expect the vibrancy and momentum in Chongqing’s economy to remain strong in the next few years.

    Chongqing has a relatively large budgetary revenue scale and a high revenue level. On the one hand, transfer and refund payments from the central government have been strong and stable, providing solid support for local fiscal expenditure. On the other hand, Chongqing’s tax revenue and non-tax revenue have grown steadily, and its financial self-sufficiency has experienced gradual improvement. In 2021, Chongqing's budgetary revenue scale amounted to RMB433.2 billion and its budgetary revenue per capita was RMB21,148, ranking at the higher end among all provincial-level regions. Overall, Chongqing’s fiscal status has shown strong resilience since the coronavirus pandemic outbreak, with little impact detected. We expect its financial strength to further improve as the city is one of the cities with enormous development potential in the western region of China.

    Credit Weaknesses

    Chongqing’s debt burden is assessed as relatively heavy, with its debt-to-revenue and debt-to-GDP ratios calculated at 245% and 59.7%, respectively, in 2021. The ratios are far above the national average, revealing Chongqing’s relatively high leverage. Chongqing's broad debt has accumulated rapidly in recent years due to the government’s effort to improve local public work and boost economic development. The debt growth rate has been higher than the growth rate of the city’s budgetary revenue and GDP. At present, Chongqing is in the rising stage of economic development and is committed to building the "two cities’ economic circle in Chengdu Chongqing region". We believe the demand for infrastructure construction is still large and the scale of debt will continue to expand.

    The city has exposed some weaknesses in its debt and liquidity management ability through some risk events involving a few regional state-owned companies in recent years. This had raised an alarm bell for Chongqing’s systematic liquidity management manner. While the general liquidity sources of the city are sufficient based on our assessment, the allocation and management of its liquidity sources could have been relatively ineffective.

    RATING OUTLOOK

    The stable outlook of Chongqing reflects our expectations that China’s credit profile will remain stable and Chongqing’s credit profile will continue to be solid over the next 12 to 24 months.

    We would consider downgrading Chongqing’s issuer credit rating if its economic growth slowed notably, the deficit widens considerably, revenue declines and liquidity deteriorates greatly.

    We would consider upgrading Chongqing’s issuer credit rating if there is an upgrade on China’s rating; and/or 2) the city’s budgetary revenue surges and debt burden is reduced significantly.

    Note: Ratings mentioned in this press release are unsolicited.

    ANALYST CONTACTS

    Primary Analyst

    Jameson Zuo, FRM

    +852 3615 8341

    jameson.zuo@pyrating.com

    Secondary Analyst

    Siqi Lin

    +86 755 83210225

    siqi.lin@pyrating.com

    Committee Chair

    Ke Chen, PhD

    +852 3615 8316

    ke.chen@pyrating.com

    Media Contact

    media@pyrating.com

    Rating Services Contact

    Allen Wei

    +852 3615 8324

    allen.wei@pyrating.com

    Date of Relevant Rating Committee: 12-July-2022

    Additional information is available on www.pyrating.com

    Related Criteria

    Chinese Local Government Rating Criteria (29 June 2021)

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