CSPI Ratings Affirms the ‘A+’ Rating on the Sichuan Provincial Government; Outlook Stable


06 Nov 2023

    HONG KONG, 6 November 2023. CSPI Ratings has affirmed the global scale long-term foreign-currency and local currency issuer credit rating (ICR) of ‘A+’ on the Sichuan provincial government. The ratings reflect the province’s robust economic growth, favourable budgetary performance, and ample liquidity resources, while its considerable debt burden and the weakness in debt management are also factored in. The outlook is stable.

    Sichuan is an inland province in southwest China (AA, stable) nestled in the upper reaches of the Yangtze River. Sichuan covers an area of 486,052 square kilometres with a total of 18 prefecture-level cities and three autonomous states. The province’s population amounted to 83.7 million in 2022, equivalent to 5.9% of the country’s total, making it the fourth most populous Chinese province.

    Credit Strengths

    Sichuan stands out as a vital economic and populous province in southwestern China. The province's rapid economic growth over the past decade can be attributed to its abundant resources, convenient transportation infrastructure, ample labour force, and favourable geographical location. In 2022, Sichuan attained a GDP of RMB5.7 trillion, securing its position as the sixth-largest provincial economy in the country. Notably, Sichuan has made significant strides in developing a diversified ‘5+1’ modern industrial system, encompassing electronic information, equipment manufacturing, food and beverages, advanced materials, energy and chemical industry, and the digital economy. Moreover, the promotion of the Chengdu-Chongqing dual-city economic circle further bolsters the long-term economic prospects of Sichuan Province. Following the accelerated economic recovery in 2023, the province witnessed a year-on-year GDP growth rate of 6.5% in the first three quarters, outpacing the national average in both the industrial and service sectors. The consumption market in Sichuan has also exhibited promising performance, indicating the province's potential to achieve an annual economic growth rate of approximately 6% by the end of 2023.

    Sichuan demonstrates commendable fiscal strength among its counterparts in the country, evidenced by its modest fiscal deficit level and sizable budgetary revenue. The province has consistently maintained a healthy budgetary balance in recent years, with an average budgetary balance ratio of -12.1% between 2018 and 2022, significantly surpassing the national average for local governments. This ratio is expected to remain at a relatively high level in the coming three years, reflecting the province’s favourable budgetary balance capacity. As a core province in the southwest, Sichuan benefits from stable increases in fiscal transfer payments from the central government, serving as its primary revenue source. Consequently, its fiscal strength has steadily improved, with budgetary revenue reaching RMB1.6 trillion in 2022. Moreover, during the first eight months of 2023, the province's general public budgetary revenue experienced robust growth. Consequently, we anticipate further expansion in the budgetary revenue scale by the end of 2023, with the fiscal deficit remaining at a relatively low level. Additionally, Sichuan has accumulated ample liquidity resources, with fiscal deposits expected to maintain at approximately RMB200 billion in the next two years, providing robust support for its liquidity requirements over the next 24 months.

    Credit Weaknesses

    Despite ranking sixth in total economic volume in 2022, Sichuan's GDP per capita remains relatively low due to its large population base. The province's GDP per capita in 2022 was calculated at RMB67,777, 20.9% below the national average, highlighting a comparatively lower economic development level. However, given the province's recent rapid economic growth, we anticipate a narrowing of the gap between Sichuan's GDP per capita and the national average in the coming years. Additionally, Sichuan exhibits disparities in regional economic development, with the provincial capital Chengdu significantly outpacing other cities and prefectures in terms of total economic volume and overall economic development. This imbalance in regional economic growth necessitates greater emphasis on fostering balanced development across Sichuan Province.

    In recent years, Sichuan has experienced significant debt accumulation, resulting in a substantial government debt burden. By the end of 2022, the province's broad debt is estimated to exceed RMB3.8 trillion. Despite its strong economic scale and budgetary revenue, Sichuan's broad debt-to-budgetary revenue and broad debt-to- GDP ratios in 2022 were 236% and 67% respectively, surpassing many other provinces. Notably, lower-level local governments in Sichuan, with weaker economic and fiscal capacities, face challenges in debt and liquidity management. Risk issues within county-level local government have eroded market confidence in the province's overall credit standing. While Sichuan Province has sufficient liquidity sources for debt repayment, imbalances in liquidity distribution and disparities in economic and fiscal strengths among different cities and prefectures may persist. Consequently, certain lower-level local governments may continue to experience tight liquidity conditions in the future.

    RATING OUTLOOK

    The stable outlook of Sichuan reflects our expectation that China’s credit profile will remain stable and Sichuan’s economic growth performance and fiscal strength will remain solid over the next 12 to 24 months.

    We would consider downgrading Sichuan’s issuer credit rating if 1) Sichuan’s budgetary balance deteriorates precipitously; and/or 2) the province’s fiscal deposit declines sharply and its liquidity position worsens significantly.

    We would consider upgrading Sichuan’s issuer credit rating if 1) there is a rating upgrade action by us on China; and/or 2) Sichuan’s GDP per capita increases notably; and/or 3) the province’s debt burden reduces materially.

    Note: The ratings mentioned in this press release are unsolicited.

    ANALYST CONTACTS

    Primary Analyst

    Jameson Zuo, FRM

    +852 3615 8341

    jameson.zuo@cspi-ratings.com

    Secondary Analyst

    Siqi Lin

    +86 755 83210225

    siqi.lin@cspi-ratings.com

    Committee Chair

    Winnie Guo

    +852 3615 8344

    winnie.guo@cspi-ratings.com

    Media Contact

    media@cspi-ratings.com

    Rating Services Contact

    Allen Wei

    +852 3615 8324

    allen.wei@cspi-ratings.com

    Date of Relevant Rating Committee: 20-October-2023

    Additional information is available on www.cspi-ratings.com

    Related Criteria

    Chinese Local Government Rating Criteria (29 June 2021)

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