Pengyuan International Assigns ‘A’ Rating to the Gansu Provincial Government; Outlook Stable


14 Jul 2022

    HONG KONG, 14 July 2022. Pengyuan International has assigned the global scale long-term foreign-currency and local currency issuer credit rating (ICR) of ‘A’ to the Gansu provincial government. The ICR reflects the province’s steadily growing budgetary revenue, reasonable liquidity condition, relatively weak economic foundation and heavy debt pressure. The outlook is stable.

    Gansu is a landlocked province in Northwest China (AA, stable), bordering Inner Mongolia, Ningxia and Qinghai. Part of Gansu's territory is in the Gobi Desert and the Qilian Mountains are in the south of the province. The province manages 14 prefecture-level cities or regions, with Lanzhou as its capital. As of the end of 2021, Gansu registered a population of 24.9 million.

    Credit Strengths

    A large amount of tax refunds and transfer payments from the central government have well-bolstered the budgetary revenue of Gansu. In 2021, Gansu registered a budgetary revenue of RMB458.4 billion, of which RMB297.3 billion, or 65%, was from the central government’s fiscal support. Over the years, this fiscal support has accounted for a significant amount of Gansu’s budgetary revenue as the central government is determined to financially underpin the country’s impoverished regions and help them to catch up with their peers to achieve Common Prosperity—a long-term national goal of China. The central government’s fiscal support to the province has been increasing steadily and well covered the fiscal expense of Gansu. In 2022, under the central government’s guidance of increasing fiscal support to local governments, we expect Gansu's budgetary revenue to continue to grow despite the uncertainties in its economy and its land sales this year.

    The province’s overall liquidity is reasonable. Gansu's fiscal deposit has increased gradually in recent years, amounting to RMB44.2 billion at the end of 2021, sufficient to cover its interest payment of direct debt based on the estimated deposit-to-interest payment ratio of 263% in 2022. In addition to the fiscal deposit, Gansu has reserved some debt-raising leeway given its direct debt to debt limit of 93.8% at the end of 2021. Looking forward, we believe the fiscal expansion in the province will be largely fuelled by the reinforced fiscal support from the central government in 2022 and 2023. Thus, the pressure to meet the fiscal spending should not be substantial, and the province’s liquidity will be likely to remain moderate.

    Credit Weaknesses

    Gansu has been one of the poorest provinces in China. For several years, it has ranked as one of the provinces with the lowest GDP per capita--RMB41,138 or USD6,378 in 2021. Since China's reform and opening up in the late 20th century, drought, remoteness and mountainous terrain have hampered the province's economic momentum, while other provinces have managed to boost economic growth. Therefore, the province’s economic development lags behind other regions in the country, with some traditional economic forms such as non-ferrous metal metallurgy and energy-related industries as the main economic driving force. This has led to cyclical fluctuations in Gansu’s economy, which is not conducive to the long-term prosperity of the economy.

    According to our calculations, Gansu’s debt-to-revenue and debt-to-GDP ratios in 2021 were 172% and 77%, respectively, reflecting the province’s relatively high leverage compared to its peers. The debt scale of the province has expanded rapidly, with an average annual growth rate of 20% between 2019-2021. We believe that Gansu’s reliance on additional borrowing to stimulate fiscal expansion over the past few years has not shown significant economic development efficiency. The province is still working to revitalize the local economy and improve infrastructure. The debt level in Gansu is expected to rise further and the debt pressure will remain large.

    RATING OUTLOOK

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

    We would consider downgrading Gansu’s issuer credit rating if the province’s deficit widens considerably, revenue plunges and liquidity deteriorates greatly.

    We would consider upgrading Gansu’s issuer credit rating if there is an upgrade on China’s rating; and/or 2) the province’s debt burden is reduced materially and the economic structure upgrades notably.

    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: 30-June-2022

    Additional information is available on www.pyrating.com

    Related Criteria

    Chinese Local Government Rating Criteria (29 June 2021)

    ***********************************************

    DISCLAIMER

    Unsolicited ratings – non-participative – disclosed and results not affected

    Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.pyrating.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.

    All credit ratings and reports are subject to disclaimers and limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.

    CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.

    For the purpose of the rating process, the Company obtains sufficient quality factual information from sources which are believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The Company had access to the accounts and other relevant public documents of the rated entity or its related party. The Company has examined the quality of information used in the rating process in accordance with established process and it is satisfied with the quality of information used.

    Users of the Company’s credit ratings shall refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.

    NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.

    The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.

    The Company does not receive compensation for its unsolicited credit ratings. The rated entity did not participate in the rating process. The unsolicited credit rating has been disclosed to the rated entity or to its related party and, following such disclosure, the credit rating result has not been amended before being issued.

    The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.

    The Company’s credit ratings and reports are not intended for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubts, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.

    In the event of any dispute arising out of or in relation to our credit ratings and reports, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.Copyright © 2022 by Pengyuan Credit Rating (Hong Kong) Company Ltd. All rights reserved.