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 Government of Xinjiang Uygur Autonomous Region. The ICR reflects the region’s high budgetary revenue level and reasonable liquidity condition, as well as a relatively weak economic foundation and swiftly increasing debt burden. The outlook is stable.
Xinjiang Uygur Autonomous Region is located in Northwest China (AA, stable), and is one of China's five ethnic minority autonomous regions. It covers an area of 1.66 million square kilometers, making it the largest provincial administrative region in China and accounting for about one-sixth of China's total land area. Xinjiang is located in the hinterland of the Eurasian continent and is bordered by eight countries, including Russia, Kazakhstan and Mongolia. In 2021, Xinjiang registered a population of 25.89 million.
Xinjiang has a relatively high budgetary revenue level, given a budgetary revenue per capita of RMB22,426 in 2021, or 10% higher than the national average. This is benefited from a continuous large amount of tax refunds and transfer payments from the central government. Xinjiang registered a budgetary revenue of RMB516.5 billion in 2021, of which RMB354.6 billion, or 68.66%, was from the central government’s fiscal support. This fiscal support has been the main source of Xinjiang’s budgetary revenue over the years, as Xinjiang is located in a remote area with vast territory and an underdeveloped economy. The central government is committed to helping the underdeveloped regions improve their economic and living conditions and maintain local stability. As a result, the central government’s strong fiscal support has promoted Xinjiang’s revenue growth and largely covered its increasing fiscal expenditure over the past few years, thus maintaining a moderate fiscal balance for the region. We expect this fiscal support will persist and steadily increase in the future.
The liquidity status is reasonable. Xinjiang has accumulated relatively solid fiscal deposits due to its sizeable budget revenue scale over the past few years. Its fiscal deposit was RMB73.4 billion at the end of 2021 and is expected to remain at the same level for the next few years, which will be sufficient to meet its interest payments on direct debts. In addition, the Xinjiang government has well managed its direct debt raising, with a direct debt balance accounting for 89.8% of the set debt limit in 2021. This ratio has been stable in recent years, suggesting adequate expansion room for the government’s additional financing capacity. Considering the expected reinforcing fiscal support from the central government should well suffice for Xinjiang’s fiscal spending for the following years, the regional government’s liquidity shall remain healthy.
The economic development of Xinjiang ranks at the lower end among all the provincial regions in China, and its economic growth shows a strong investment-driven convention. In 2021, the region’s GDP per capita was calculated at RMB61,782, one quarter lower than that year’s national data. The regional economy grew by 3.4% in 2020 owing to the pandemic’s impact and rebounded by 7% in 2021. Xinjiang has not seen exceptional momentum in its economic growth over the past few years, with its GDP growth basically in line with that of the country. However, Xinjiang's economic growth is excessively driven by investment in fixed assets, which is considered not conducive to the sustainability and stability of the region’s economic growth. The fixed asset investment in Xinjiang has grown rapidly and amounted to RMB1,208.5 billion in 2021. We believe Xinjiang’s investment-driven pattern will not reverse in a short term.
The debt scale of Xinjiang has been rapidly expanding and posing a burden on its economy. By the end of 2021, the Xinjiang government’s direct debt registered at RMB724.9 billion, 2.15 times versus that of 2017, growing at a high speed. Its broad debt totalled RMB952.2 billion in 2021, which amounted to 59.6% of the region’s GDP, reflecting its relatively high leverage compared to its peers. Given the local economy’s heavy reliance on investment, Xinjiang is projected to expand its financing scale to fuel expenditures on infrastructure construction and improvement, thus we predict the broad debt-to-GDP ratio will further rise to a certain extent.
The stable outlook of Xinjiang reflects our expectations that China’s credit profile will remain stable and Xinjiang’s credit profile will continue to be solid over the next 12 to 24 months.
We would consider downgrading Xinjiang’s issuer credit rating if the region’s deficit widens considerably, revenue plunges and liquidity deteriorates greatly.
We would consider upgrading Xinjiang’s issuer credit rating if there is an upgrade on China’s rating; and/or 2) the region’s debt burden is materially reduced and its GDP per capita increased 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: 12-July-2022
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