China Province/City Bonds… Macau Casinos No worry

Posted: October 21, 2011 in Uncategorized


21st Oct 2011

Commentary by:  Professional Ground panel

News extracts from CNA report:

Posted: 20 October 2011

SHANGHAI : China said Thursday that it will allow four of its most developed cities and provinces to issue bonds on a trial basis, giving cash-strapped local governments a much-needed funding boost.

Local authorities have been under financial pressure after amassing huge debts through financing vehicles and lower revenue from land sales as the central government attempts to cool the red-hot property market.

Shanghai, the eastern province of Zhejiang, southern Guangdong province and the southern boomtown of Shenzhen would be allowed to issue bonds on an “experimental” basis, the Ministry of Finance said in a statement.

The move would “ease their financial strains and curb fast-spreading debt risks”, the official Xinhua news agency said.

Local governments, which are banned from borrowing directly from banks, set up financing vehicles to fund infrastructure and other projects and their growing debts fuelled concerns about a potential explosion in bad loans.

The ministry gave no precise timing for the bond issues but said central government permission was granted based on a 2011 quota, implying the local governments will go to the market this year.

In June, China’s National Audit Office put the debt held by local governments at 10.7 trillion yuan (US$1.65 trillion) at the end of 2010 — or about 27 percent of China’s 2010 gross domestic product (GDP).

Since then, several provinces have published reports that showed their debt-to-GDP ratio was higher than the national figure.

But China’s top banking regulator, Liu Mingkang, said this week that risk from local government debt could be controlled.

Professional Ground commentary:

We got it on Bull’s Eye again, based on our earlier assessment of the subject.  China will not allow total collapse of credit flow and banking problems especially in its key regions and cities. 

Please refer to related blog posts on Professional Ground dated 12 Oct and 10 Oct 2011 regarding the subject of China credit crunch and potential issues for casinos in Macau.

It was assessed that when push comes to shove, China would carry out re-capitalization or re-financing action for its cities and banks should the need arises. Now that Beijing govt. has announced the policy allowing four major cities/regions to issue bonds.  And, mind you, these cities will be strongly backed by the central government and there will not be the case of default. This is unlike western regimes such as corporations and national treasury, where default can be apparently and real.

So, such Chinese (special) bonds issued by the four cities will not fall into the hands of credit rating agencies (i.e. S&P, Moody etc.) for any down-grading threats.  

Don’t forget, when a big country like China that owns huge foreign reserves, what down-grading you are talking about?!  Those domestic debts created by some Zhejiang SMEs are insignificant as such, that only create ripples….



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s