HONG KONG, 10 November 2023. CSPI Ratings has affirmed the global scale long-term foreign-currency and local currency issuer credit rating (ICR) of ‘A’ on the Guizhou provincial government. The rating reflects the province's solid economic growth and sound budgetary performance, but is also restricted by its relatively heavy debt burden. The outlook is stable.
Guizhou is an inland province in southwestern China (AA, stable) bordering the provinces of Hunan, Yunnan, and Sichuan. The province covers an area of 176,167 square kilometres, accounting for 1.83% of China’s land area. Guizhou has six prefecture-level cities and three autonomous states with a population of 38.6 million in 2022, or about 2.7% of the country’s population.
Guizhou province has demonstrated robust and steady economic growth. Before 2021, its economy exhibited strong momentum, with growth rates surpassing the national average. In 2022, Guizhou province's GDP surpassed the significant milestone of RMB2 trillion, reaching RMB20,165 billion. However, the economic growth rate for 2022 stood at 1.2%, which was 1.8 percentage points lower than the national average. The province experienced rapid economic expansion fueled by fixed asset investment until 2021, after which fixed asset investment declined, resulting in a diminished contribution to overall economic growth. In recent years, Guizhou has embarked on an ambitious industrial restructuring process to foster high-quality economic development. By prioritizing new industrialization initiatives and continuously optimizing investment structures, the province has bolstered its long-term economic prospects. Encouragingly, in the first three quarters of 2023, Guizhou province witnessed a 7.3% year-on-year increase in the value-added of large-scale industries. Notably, high-tech manufacturing, equipment manufacturing, and the new energy battery and materials industry all experienced double-digit growth. Furthermore, the accommodation and catering industry, as well as transportation, warehousing, and postal services, also recorded double-digit growth rates. These positive developments underscore the preliminary success of the province's diversified industrial structure. Based on these factors, we anticipate that Guizhou province will maintain a trajectory of steady economic growth in the coming years.
Guizhou province has exhibited remarkable fiscal performance. Thanks to robust and sustained growth in transfer payments from the central government and tax rebatement, the province has managed to maintain a relatively low deficit level. The central government's financial support has been the major source of revenue for the Guizhou provincial government, accounting for 42% and 48% in 2021 and 2022, respectively. As the economy continues its recovery, Guizhou province has experienced a resurgence in budgetary revenue in 2021 and 2022, while maintaining a prudent level of budgetary expenditures. Consequently, the ratio of budgetary balance to revenue has gradually narrowed, standing at -10.1% and -7.9% in 2021 and 2022, respectively. In the first three quarters of 2023, the general budgetary revenue of Guizhou province has sustained double-digit high-speed growth, as a result of a relatively low base in the previous year affected by the tax refund policy. Looking ahead, we anticipate that by the end of 2023, the ratio of budgetary balance to revenue in Guizhou province will continue to narrow, reaching -8.7%. This will ensure the province maintains a reasonable deficit level while promoting fiscal sustainability.
The Guizhou provincial government bears a substantial burden of debt. In recent years, the province's reliance on an investment-driven economic growth model has led to a persistent increase in its debt load. Consequently, Guizhou province's debt burden is relatively heavy compared to many other provincial-level regions. According to calculations, in 2022, the ratio of broad debt to GDP and the ratio of broad debt to budgetary revenue for Guizhou province were reported as 103% and 272%, respectively. These figures indicate a relatively high level of debt, which is exerting an impact on the province's economic and fiscal conditions.
The government of Guizhou province faces challenges in effectively managing its debt and liquidity. Assuming a high debt burden, the province has exhibited weaknesses in debt and liquidity management. In recent years, certain risk events related to local government financing vehicles, particularly those at the county and district levels, have drawn widespread market attention. These incidents have shed light on deficiencies in Guizhou province's debt management capabilities and liquidity management mechanisms.
The stable outlook for Guizhou reflects our expectations that China’s credit profile will remain stable and Guizhou’s credit profile will remain solid over the next 12 to 24 months.
We would consider downgrading Guizhou’s issuer credit rating if the province’s deficit widens substantially.
We could consider upgrading Guizhou’s issuer credit rating if 1) there is a rating upgrade action by us on China; 2) Guizhou’s liquidity improves significantly; and/or 3) Guizhou’s debt burden alleviates markedly and the provincial government’s debt and liquidity management capacity improves greatly.
Note: The ratings mentioned in this press release are unsolicited.
Jameson Zuo, FRM
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Date of Relevant Rating Committee: 9-November-2023
Additional information is available on www.cspi-ratings.com
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