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.
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.
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.
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.
Jameson Zuo, FRM
+852 3615 8341
+86 755 83210225
Ke Chen, PhD
+852 3615 8316
Rating Services Contact
+852 3615 8324
Date of Relevant Rating Committee: 30-June-2022
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