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China's 6 SOEs pen down commitment to reduce leverage
2018/07/09 07:56:17

Jul 09, 2018 (China Knowledge) - China's state asset regulator has heeded President Xi's call to accelerate the country's efforts to reduce debt and churn out a healthier state-owned sector. The world's second largest economy is trying to shift its economy away from debt-fueled spending binge associated with cheap credit, which has seen China's debt soared to more than 260% of the country's gross domestic product and has triggered concerns about an economic fallout amid high systemic financial risk.

The State-owned Assets Supervision and Administration Commission (SASAC) has moved to secure the commitments of some of the country's biggest state-owned enterprises like state oil giant Sinopec and state-owned railway constructor China Railway Construction Corporation Limited (CRCC) to reduce their leverage ratio and debt. Other firms that have pledged to help defuse the economy's financial risk by lowering their leverage ratio include China Ordnance Equipment Group Corporation, China Huaneng Group, China Huadian Corporation and China State Construction Engineering.

Xiao Yaqing, director of the SASAC, pointed out in his speech themed "Central enterprises deleverage and debt reduction" held at China Huadian Corp headquarters last Friday that the debt level of central enterprises has been effectively controlled in recent years and showed signs of declining. The average debt ratios last year fell 0.4% from a year earlier to 66.3%

He stressed that preventing and resolving major risks remains the top priority of the "three crucial battles" the country faces and SOEs should adopt effective measures and resolutely reduce leverage and debts

"First, we must fully understand the significance of current debt control and take the lead in the battle to prevent and resolve major risks. Second, we must strengthen organizational leadership and strictly implement target responsibilities. Third, it is necessary to adjust and optimize the investment structure and strictly control investments that push up the debt ratio. Fourth, we must continue to deepen the supply-side structural reform and accelerate institutional reforms. Fifth, we must strengthen fund management and strive to improve capital utilization," he said, highlighting that more needs to be done.

In addition to reducing leverage and debt, he added that efforts should also be made to supplement equity capital through various channels to further enrich the capital and controlling all kinds of risks, especially overseas investment risks.

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