China’s finance ministry tightens ‘no bailout’ policy targeting regional companies, financing vehicles
Beijing tells provincial authorities that state-owned enterprises and other entities are not eligible for government life support
The Ministry of Finance has withdrawn “implicit support” for the debt of entities linked to regional governments, making it clear that state-owned enterprises will not be in a position to benefit from a provincial government bailout.
Any outstanding borrowings that don’t meet the strict definition of local government debt from January 1, 2015 must be repaid by the entities that raised the funds, the statement said.
In regards to borrowings before the cutoff date, the ministry will continue to allow local governments to swap high-cost maturing debt for lower-cost debt, a programme that began in 2015, to ease debt repayment pressure and guard against financial risks, the MOF said.
However, some analysts expressed doubts over whether these entities would ever be allowed to default on their debt obligations, given the intertwined relationship between local governments and their financing vehicles.
They note the Chinese government has made similar statements before, but this has yet to dispel expectations among investors that state aid would be forthcoming during a financial crisis.