HONG KONG, 27 August 2021. Pengyuan International has assigned the global scale long-term foreign-currency and local currency issuer credit ratings (ICR) of ‘A+’ to the Liaoning provincial government, reflecting Liaoning’s sound budgetary performance, mitigating debt burden but underperforming economic strength. The outlook of the ratings is stable.
Liaoning is located in the southern part of the Northeast China (AA/AA+, Stable). The province borders Jilin, Hebei and Inner Mongolia, sharing an international border with North Korea in the east, and facing Japan and South Korea across the sea. It covers an area of 148,000 square kilometres and has a population of 42.6 million at the end of 2020, equivalent to 3.0% of the country’s population.
CREDIT SUMMARY
Credit Strengths
Liaoning has a relatively low budgetary deficit compared to its peers buoyed by its steadfastly growing revenue and moderate expenditure, revealing the province’s robust fiscal sustainability. Fiscal help from the central government plays a vital role in the province’s revenue strength. The budgetary balance to revenue ratio of Liaoning dropped to -9.6% in 2020 mainly due to the impact of the coronavirus pandemic, but this ratio is expected to remain stable in the next few years, which would be far above the national average level and reveal a low deficit level.
The province has a decent fiscal deposit among its peers, amounting to RMB85 billion at the end of 2020. By our estimate, it is projected to remain stable in the next few years. As the province’s debt is estimated to have a mild rise, interest payment is not expected to see any significant increase in both 2021 and 2022. In addition, since the province’s debt ceiling has been lifted steadily by the central government over the years, the Liaoning government has strong financing capacity to bolster its liquidity position.
Credit weaknesses
Liaoning has been an industrial base in North China for decades, but the province has seen a sluggish economic growth since the 2010s as its pillar industries of metallurgy and petrochemistry lost their edge after capacity cuts and restructuring. The province is assessed to be in a low economic development stage with its GDP per capita at RMB58,334 (USD8,455) in 2020, far below the national average level. Since the economic stimulus strategies of Liaoning are underway and the province is going through transformation, we believe the long-term vision of the province’s economy should be promising.
Liaoning was under heavy debt burden in the early 2010s due to rapid industrial expansion in the past decades. However, decelerating growth of debt over the period of 2017 to 2019 has substantially eased the pressure on repayment. Liaoning’s debt level is currently in line with the local governments’ average level in China, with the debt to revenue ratio of 145% at the end of 2020. Though the broad debt to GDP ratio recorded a minor increase of 1.8 percentage point in 2020 mainly due to the coronavirus outbreak, Liaoning’s debt growth should be modest and lower than that of most of its fellow governments in the next few years.
Note: Ratings mentioned in this press release are unsolicited ratings.
ANALYST CONTACTS
Primary Analyst
Jameson Zuo, FRM
+852 3615 8341
Secondary Analyst
Ke Chen, PhD
+852 3615 8316
Committee Chair
Brian Lam
+852 3615 8339
MEDIA ENQUIRIES
Ms. Charley Lui
Direct：+852 3615 8296
RATING SERVICES ENQUIRIES
Mr. Allen Wei
Direct：+852 3615 8324
Date of Relevant Rating Committee: 2-Aug-2021
Additional information is available on www.pyrating.com
Related Criteria
Chinese Local Government Rating Criteria (29 June 2021)
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Unsolicited ratings – non-participative rating –disclosed – not amended
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