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Moody's: Chinese RLGs' economic and financial position will continue to improve for the rest of 2016 www.moodys.com
Sydney, September 12, 2016 -- Moody's Investors Service says that the economic and fiscal position of regional and local governments (RLGs) in China (Aa3 negative) improved in H1 2016.
"We expect this positive trend to continue for the rest of 2016, as monetary and fiscal stimulus continue to support growth," says Nicholas Zhu, a Moody's Vice President and Senior Analyst.
"However, we note that the RLGs' economic and fiscal positions vary widely, with provinces heavily exposed to excess-capacity industries such as coal, steel and basic manufacturing lagging behind," adds Zhu.
Moody's analysis is contained in its just-released report titled "Regional and Local Governments — China: Debt and Finances Snapshot."
The report says that monetary and fiscal stimulus led to GDP during H1 2016 growing at a faster pace for nine provinces versus seven in 2015.
Debt and equity financing grew at a faster pace in 13 provinces, and growth in industrial production accelerated in 12 provinces, while growth in fixed-asset investment increased in nine provinces.
Moody's notes that while the growth supported by policy stimulus might seem to minimize risks in the short run, it is likely to leave unaddressed the deep imbalances evident across regional economies, thereby increasing long-term adjustment costs.
As for fiscal revenues, in H1 2016, the RLGs' tax and non-tax revenues rose by 11% compared with a year earlier. Land sales — another major source of revenues — increased by 10%. These revenues will continue rising in upcoming quarters, because of the continued stabilization of the Chinese economy and real estate market.
On the real estate market in particular, Moody's report says this sector will continue to stabilize in many provinces. During H1 2016, 22 provinces reported increases in new residential and commercial real estate construction starts on a year-on-year basis. The price of land continued to rise in most large cities, especially with respect to land for residential properties. And, the price of newly developed residential properties continued to rise, although the increase was slower in first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen).
Moody's believes further restrictive policies such as raising the down payments for mortgages in cities with strong price growth is likely. Nevertheless, policies in lower-tier cities with high inventory pressure will remain broadly supportive.
On RLG bond issuance, Moody's report says such issuance has been robust, with the monthly RLG bond issuance in April 2016 registering the highest ever level, at RMB1.06 trillion ($163 billion). In H1 2016, three quarters of total issuance took place as part of a debt-for-bond swap program sponsored by the Ministry of Finance. The program will likely cut the rate that RLGs pay on their debt by four to five percentage points on average.
Published Date:2016-09-12
