HONG KONG, 6 November 2023. CSPI Ratings has affirmed the global scale long-term foreign-currency and local currency issuer credit rating (ICR) of ‘AA-’ on the Zhejiang provincial government. The rating reflects the province’s solid economic fundamentals, superior budgetary performance, and healthy liquidity positions but relatively heavy debt burden. The outlook is stable.
Located in the south wing of the Yangtze River Delta on the southeast coast of China (AA, stable), Zhejiang Province boards the East China Sea to the east, Fujian to the south, Jiangxi and Anhui to the west, and Shanghai and Jiangsu to the north. It has 11 prefecture-level cities, including its capital, Hangzhou, and a total population of 65.77 million in 2022.
Zhejiang Province boasts a strong economic foundation, as evidenced by its impressive economic performance in terms of economic size, per capita GDP and GDP growth rate. Zhejiang’s GDP exceeded RMB7 trillion in 2021 and reached RMB7.7 trillion in 2022, ranking fourth in China. It has consistently held the fifth position in the country with a per capita GDP of RMB118,495 in 2022. Notably, Zhejiang Province stands out for its sustained high economic growth. In the first three quarters of 2023, the province grew at a 6.3% annual pace, surpassing the national average by 1.1 percentage points, and taking a lead among major economic provinces in China. The province's vibrant economy is primarily propelled by the tertiary industry, featuring a well-balanced industrial structure and remarkable resilience. In addition, Zhejiang Province boasts a plethora of economic development advantages. The province's business environment holds a prominent national ranking, reflecting its favourable conditions for commercial activities. Notably, in 2022, the private economy's contribution to Zhejiang's GDP stood at an impressive 67%, underscoring its pivotal role in the region's overall economic trajectory. Furthermore, Zhejiang has nurtured new economic momentum. In the first three quarters of 2023, the added value of the new energy industry, energy-saving and eco-friendly manufacturing industry, and manufacturing of the core digital economy industry expanded by 19.8%, 11.3%, and 8.8% respectively, higher than the growth rate of large-scale industrial enterprises. Taking these factors into consideration, we assert that Zhejiang Province is poised to sustain its robust economic momentum in the foreseeable future.
The extraordinary budgetary strength of Zhejiang has been fortified by its robust economy. In 2022, the province's general public budgetary revenue reported RMB804 billion, up by 5.5% YoY and ranked third in China. It also exhibits a commendable fiscal self-sufficiency rate and high-quality revenue streams, with over 80% of fiscal revenue derived from tax and non-tax revenue, well above the national average. The Zhejiang government's large revenue base and efficient tax collection practices have supported its adept management of revenue and expenditure so that the government has maintained a relatively low fiscal deficit level over the past few years. Despite the setback in government fund revenue in 2022 due to a decline in land transfer income, resulting in an expansion of the fiscal deficit, we project a narrowing of the deficit in the subsequent years. We estimate that the average revenue balance to revenue ratio will be -12.6% from 2021 to 2025, significantly higher than its peers.
Zhejiang Province maintains a healthy liquidity position, supported by a sizable fiscal deposit. We estimate its fiscal deposit-to-interest payment and liquidity coverage ratios to be 535% and 180% in 2024, respectively, indicating sufficient liquidity conditions. In addition to the increasing fiscal deposit, which serves as an immediate and efficient liquidity source, Zhejiang also has strong refinancing ability and a great capacity to access the financing market.
The favourable local financing environment has contributed to Zhejiang's soaring debt level. Despite its sound economic and fiscal scale, we estimate that Zhejiang's broad debt exceeded RMB5.2 trillion by the end of 2022, with debt-to-GDP and debt-to-revenue ratios calculated at 262% and 68%, respectively, higher than those of most of its peers. The province's debt has grown at an average rate of 22.6% from 2019 to 2022, particularly in terms of hidden debt. In our view, the high leverage could pose a challenge to Zhejiang's overall debt management. On a positive note, the recent introduction of "a package of debt resolution policies" proposed by the central government is expected to alleviate the local government's debt burden.
The stable outlook for Zhejiang reflects our expectations that China’s credit profile will remain stable and Zhejiang will largely maintain its economic growth momentum over the next 12 to 24 months.
We would consider downgrading Zhejiang’s issuer credit rating if: 1) there is a rating downgrade action by us on China; 2) the province’s economic development deteriorates substantially or liquidity drains materially.
We would consider upgrading Zhejiang’s issuer credit rating if Zhejiang’s debt pressure is relieved substantially.
Note: The ratings mentioned in this press release are unsolicited.
Jameson Zuo, FRM
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Date of Relevant Rating Committee: 20-October-2023
Additional information is available on www.cspi-ratings.com
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