China SOEs USD 10 trillion debt burden and soaring funding costs

Tuesday 23rd September, 2014 – 18:00 HKT

China Business News reports today that China’s State Owned Enterprises (SOEs) by the end of August had accumulated debts totaling 65 trillion yuan (10.4 trillion dollars), up 12.3% year on year. Total assets stood at 99 trillion yuan (15.9 trillion dollars), up 12% year on year.

Total operating income for the first 8 months of the year increased 5.5% year on year to 31.18 trillion yuan, but continued to ease, with August showing a month on month decline of 0.3%. Total costs for the same period increased 5.7% year on year to 30.08 trillion yuan. Of these costs, sales costs increased 7.7%, management costs increased 3.1%, and funding costs sharply increased by 19.7%.

In contrast with local SOEs, central SOEs experienced funding cost increases over the same period of up to 22.4%. The steel industry in particular has seen funding costs climb quickly in line with the large increase in accounts receivables.

Since the central government has chosen to implement targeted rather than large monetary easing, interbank benchmark lending rates for 3-5 year loan periods have climbed to around 6.4%. This has lead central SOEs to be more cautious with raising funds indirectly, but at the same has helped with raising funds directly.

For example SASAC announced on the 15th of August, China National Nuclear Corporation successfully raised 5 billion yuan in medium term notes, at a rate of 5.28%, the lowest rate in the past two years. This saved the SOE 240 million yuan, when compared with borrowing at the higher bank loan rates.

Overall the data shows SOEs in the steel and telecommunications industries continue to maintain profits, whilst coal and chemical industry SOEs continue to struggle with mounting losses.

(Article not to be copied or reproduced without permission or citation).

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