中国公共部门赤字衡量

1、ChinaFixed IncomeCreditGauging the public sector deficitChina Onshore InsightsChinaFixed IncomeCreditGauging the public sector deficitChina Onshore InsightsItisfruitlesstodebatewhetherafiscaldeficitofmorethan3% of GDP is sustainable for China it has long been abovethatBetter fiscal transparency woul

2、d encourage borrowing discipline and help reduce implicit governmentspendingMinimal risk of offshore LGFV bond default; buy CHDXCH21 and CQNANA21The debate is headed in the wrong directionDiscussing whether it is sustainable for China to have a fiscal deficit of more than 3% of GDP has no point, in

3、our view. Considering all forms of government borrowing that is, all borrowing that carries no credit risk Chinas consolidated public sector deficit has been well above 3% of GDP for quite some time. The borrowing entities involved include the central government, local governments, government-sponso

4、red entities, local government funding vehicles (LGFVs), and policy banks. We estimate that the consolidated deficit brought about by these entities has been around 8% of GDP since 2013, peaking at 9.1% in 2016, and has been declining over the past two years as the government has pursued deleveragin

5、g.Explicit borrowing assumes a bigger roleGovernment borrowing has recently become more transparent. Initiatives such as muni swaps have been used to reclassify some implicit government debt as explicit. This switching is one of the key reasons the official fiscal deficit has risen. We think transpa

6、rency can enhance fiscal discipline and thus reduce the real deficit level; at is to A fiscal deficit is not necessarily inappropriate in a state-dominated economy, the government deficit is naturally bigger than in a market-dominated economy unless methods to be as or bank debt.Offshore USD bond de

7、fault unlikely in the near termDespite the markets growing concern about Chinas debt situation, the LGFV USD bond space grew 4% in 2018, to USD43bn. Now that the first high-yield rated LGFV USD bond to mature in 2019 has been repaid in full (USD300m NHLHK19, due on 11 January 2019), we adopt a more

8、neutral stance towards the space, believing that the risk of offshore USD bond defaults has abated.20 February 2019Helen HuangAnalyst, Fixed IncomeThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:helendhuang.hk helendhuang.hk+852 2996 6585Roanna ChauAssociate, Credit ResearchTh

9、e Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:roanna.c.y.chau.hk roanna.c.y.chau.hk+852 3941 7186Disclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Iss

10、uer of report: The Hongkong and Shanghai Banking Corporation LimitedView HSBC Global Researchat: HYPERLINK / Official vs real public sector deficitThe official fiscal deficit significantly underestimates the real situation if all forms of borrowings with no credit risk areincludedGovernment credibil

11、ity is the last line of defence for financial stability and cannot be tested when the economy faces a seriousslowdownOffshore LGFV bond default risk reduced; buy CHDXCH21 and CQNANA21There has been much talk about whether Chinas fiscal deficit in 2019 can sustainably be enlarged to 3% of GDP or more

12、. The trouble is, the concept of government borrowing in China is not being defined clearly. There are so many entities that borrow on behalf of the government that the official fiscal deficit number really depends on what types of borrowing areincluded.We have decided to analyse Chinas consolidated

13、 fiscal deficit situation by including all the government borrowing channels that we can track. This has important implications for private borrowers, such as corporations and banks, whose access to credit resources depends on what is left over after government borrowing demand is satisfied. Some of

14、 the de facto government borrowing is done directly under the name of corporate borrowers or banks, making it difficult for credit analysts to decide whether to treat such debt as government or non-governmentdebt.In this report, we discuss the explicit and implicit government borrowing channels one

15、by one.1. Government bondsGovernment bonds are supposed to be the only tool for funding the government deficit. The official deficit budget is set by the Ministry of Finance at the beginning of each year. Fig 1 shows the historical amount of the deficit and the ratio of deficit to GDP. The result is

16、 by no means excessive: the official fiscal deficit as percentage of GDP has consistently been at or below 3%, and the ratio declined during 2017 and 2018.Official fiscal deficit and as percentage ofGDP2,5003.50%2,0003.00%RMBbn1,5002.50%RMBbn1,0002.00%5001.50%-2013201420152016201720182019EOffical ce

17、ntral gov fiscaldeficitbudgetOfficial local gov fiscal deficitbudget Total official deficit budget / GDP ratio,RHS1.00%Source: Ministry of Finance, HSBCThe central governments official deficit is financed by China government bonds (CGBs) issued by the Ministry of Finance. This part is straight forwa

18、rd: each year, net CGB issuance has closely tracked the central governments fiscal deficit budget, as Fig 2 shows.Official central government deficit and net issuance ofCGBRMBbnRMBbn-201320142015201620172.0%1.8%1.6%1.4%1.2%1.0%0.8%0.6%0.4%0.2%0.0%Offical central gov fiscaldeficitbudgetNetissuance,CG

19、BNet issuance, CGB / GDP,RHSSource: Ministry of Finance, Wind, HSBCHowever, the local governments fiscal deficits are trickier to track. They are supposed to be financed by the municipal bonds (munis) issued by local governments. But, as Fig 3 shows, net issuance of munis has been well above the off

20、icial local government fiscal deficit since 2015.Thehugegapexistsfortworeasons,ortwoinitiatives:muniprojectbondsandmuniswaps,and both have the effect of underreporting local governmentsdeficits.Official local government deficit and net issuance ofmunisRMBbnRMBbn-20132014201520162017Official local go

21、v fiscaldeficitbudgetNet issuance,MuniOfficiallocalgovfiscaldeficitbudget/GDP,RHSNet issuance, Muni / GDP,RHS9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Source: Ministry of Finance, Wind, HSBCFirst, muni project bonds. These are issued in massive amounts, but not included in local government fiscal defi

22、cits. There is an argument that muni project bonds interest and principal payments should come strictly from the underlying projects that the bonds proceeds are put into. These projects will pay for themselves; if they dont, investors not the government must bear the loss. Thus, muni project bonds c

23、ould be excluded from local governments fiscal deficits. But the market does not agree. If muni project bonds are indeed project bonds instead of government borrowing, the market would have demanded much higher premiums over the issuance price of muni general bonds, which are officially admitted to

24、be government borrowing. In reality, there is a negligible difference in the issuance cost between these two types of government bonds, as Figs 4 and 5 show.Primary market issuance price,3Y munis, monthlyseriesPrimary market issuance price, 5Y munis, monthlyseries4.505.004.004.504.003.503.002.502.00

25、2015201620172.002015201620172018Muni GeneralBondMuniProjectBondMuniGeneralBondMuni ProjectBondSource:Wind,HSBCSource: Wind,HSBCThen there is the muni swap programme. From 2015 to 2018, local governments cumulatively issued RMB12.17trn of munis and used the proceeds to repay their other borrowings th

26、atoccurred before 2015. Both muni general bonds and muni project bonds have been aggressively issued for this purpose, but none has been recorded in the fiscal deficit. To put it another way, before 2015 a significant chunk of government borrowing was done through implicit channels and registered as

27、 corporate borrowing and thus did not show up in the fiscal deficit. When these implicit corporate borrowings have to be refinanced by government bonds, such government bonds are not registered as part of the fiscal deficit, either.Complications brought about by the muni project bonds and muni swap

28、initiatives have divided net muni issuance into four types:Muni general bonds for funding incremental investmentMuni general bonds for muni swapsMuni project bonds for funding incrementalinvestmentMuni project bonds for muniswapsWe have done the manual work of digging into the use-of-proceeds disclo

29、sures for more than 4,000 munis issued from 2013 to 2018 to figure out exactly how much has been issued under each of these four types. The result is shown in Fig 6 below. Only the first type is included in official local government deficit totals. No wonder actual muni issuance far exceeds the offi

30、cial local government deficit.We think all these complications can be resolved as follows: no matter what a muni is issued for or under what scheme, it represents government credibility, and thus should be considered part of the official government deficit.6. Use of proceeds of net muni issuance7,00

31、06,0005,000RMBbn4,000RMBbn3,0002,0001,000-2013201420152016201720184. Muni Project Bonds forMuniSwap3. Muni Project Bonds for funding incrementalinvestment2. Muni General Bonds forMuniSwap1. Muni General Bonds for funding incrementalinvestmentSource: Wind, HSBC2. China Railway CorporationChina Railwa

32、y Corporation, or CRC, is the most important entity building and operating Chinas gigantic railway system. It was part of the government before 2013 and remains a government- sponsored after being off from the two issuers are as enjoying in bond market, the other being Central holds shares in strate

33、gic financial institutions on behalf of the central government.The fact that there are just two institutions that enjoy this kind of sponsorship tells us how special they are. Government sponsorship helps CRC raise debt in the market at low cost, and for that reason its debt is essentially governmen

34、t debt, i.e. the government has an undisputed obligation to step up to help if CRC gets into financial trouble.Thus we include CRCs borrowing in our calculation of the consolidated public sector deficit. Data is also quite readily available, as CRC is a public bond issuer and thus publishes quarterl

35、y financials. Note that Chinas actual investment in the railway system, as the grey bars in Fig 7 show, is much bigger than the growth of CRCs debt. This is because CRC is not the only entity implementing these investments there are many regional railway operators as well. And debt is not the only f

36、orm of raising money for railway investment either equity funding also plays a role. Regional operators and equity funding have much weaker sponsorship support from the government and thus are excluded from our calculation of the consolidated public sector deficit.7. Net increase of CRCs total debt

37、and Chinas fixed asset investment in railwayRMBbnRMBbn-201320142015201620171.4%1.2%1.0%0.8%0.6%0.4%0.2%0.0%Net increase of CRCs totaldebt, RMBbnFixed asset investment completed, railway, RMBbn Net increase of CRCs total debt /GDP,RHSFixed asset investment in railway / GDP,RHSSource: CRC, HSBC3. Loca

38、l government funding vehicles (LGFVs)We in on this topic being our China Onshore Insights of 4 October 2018: HYPERLINK /R/10/qxgTjmK Local government debt: the HYPERLINK /R/10/qxgTjmK knowns and unknowns. The biggest trouble for credit analysts and investors with LGFVs is an identity issue: are LGFV

39、s corporates or government entities? If they are corporates, its better to stay away from most of them, because they have low cash-generating capacity and high debt. If they are government entities, they are attractive targets because their debt offers a corporate return and government credit risk e

40、xposure. So far, foreign investors have tended to view LGFVs as corporates while domestic investors have tended to view them LGFVs as government entities.Time will tell which view is correct. At the current juncture, LGFVs are more like government entities than corporates for one simple reason: they

41、 do not default, no matter what. At least for now. Last year, 7.55% of bond obligations due for privately owned enterprises (POEs) were missed. And defaults by state-owned enterprise (SOEs) have also become no surprise.However, the bond default record for LGFVs has remained zero. Another reason for

42、thinking of LGFV debt as government debt is the muni swap programme under which some LGFV debt created before 2015 was refinanced by munis. This essentially confirms that such refinanced LGFV debt is in fact government debt.We take the net increase of outstanding LGFV debt as part of our calculation

43、 of the consolidated public sector deficit. There are nearly 10,000 LGFVs out there, but only around 1,800 publish financials publicly, and their debt growth situation is shown in Fig 8. It grew fastest from 2014 to 2017, during which time LGFVs added around RMB3trn of new debt per year. The growth

44、rate dropped quite sharply in 2018, when the annualised increase in debt outstanding fell to around RMB2.5trn per year, according to our annualised data in 2018.8. Net increase of outstanding LGFV debtRMBbnRMBbn-20132014201520162017Net increase of total debt outstanding of 1783 LGFVs, RMBbnNet incre

45、ase of total debt outstanding of 1783 LGFVs / GDP6.0%5.0%4.0%3.0%2.0%1.0%0.0%Note: data in 2018 is annualised based on result of the first three quarters. For those that have not reported 3Q financials, assume 9% growth of total debt for the full year 2018. Source: Wind, HSBC4. Policy banksItiswidel

46、yacceptedthatpolicybanksdonotcarrycreditrisk.Theironshorebondsofferspreads over CGBs, as Fig 9 (overleaf) shows, but this is because of tax reasons: onshore investors pay 25% tax (before deductibles) for coupon income from policy bank bonds, compared with zero for CGBs and munis. Excluding the tax f

47、actor, China Development Bank bond yields are even lower than CGB yields (without considering deductibles), as Fig 9 shows, mainly because of their better liquidity in the secondary market. The same situation applies to the other two policy banks: the Export-import Bank of China and Agricultural Dev

48、elopment Bank of China (Fig 10 and Fig 11). To be exact, China Development Bank is officially no longer a policy bank after launching its commercialisation reform in 2008. But the market still treats it as having sovereign credibility and the risk weight of its bonds has remained set at zero by bank

49、ingregulators.Yield comparison, China Development Bank bonds vsCGBs%2010201120122013201420152016201720182019China Development Bank Bond, 10Y,beforetaxCGB,10Y China Development Bank Bond, 10Y, aftertaxSource: Wind, HSBCNote: without considering tax deductiblesYield comparison: Export-Import Bank of C

50、hina bonds vs CGBs6.506.005.505.00%4.50%4.003.503.002.502.0020102012201420162018Export-import Bank of China Bond, 10Y, before tax CGB, 10Y Export-import Bank of China Bond, 10Y, aftertaxSource: Wind, HSBCNote: without considering tax deductiblesYield comparison: Agricultural Development Bank of Chin

51、a bonds vs CGBs6.506.005.505.00%4.50%4.003.503.002.502.0020102012201420162018AgriculturalDevelopmentBankofChinaBond,10Y, beforetaxCGB,10Y AgriculturalDevelopmentBankofChinaBond,10Y, after taxSource: Wind, HSBCNote: without considering tax deductiblesWe put policy banks at the end of our list not bec

52、ause it has the weakest credibility, but because a lot of their lending goes to the government, CRC and LGFVs. Such lending is already captured in the analysis elsewhere in this report. As evidence, Fig 12 to Fig 14 show the breakdown of the three policy banks loans outstanding as of 2017. Loans to

53、railways, highways, public infrastructure and urban housing sectors are very likely to come from government, CRC and LGFVs, and thus would create a double counting problem if we include all policy bank debt in Chinas consolidated public sector deficitfigure.Breakdown of loan outstanding,China Develo

54、pmentBankBreakdown of loan outstanding, Export-import Bank ofChinaStrategic 6%26%7%Highways 16%Electric Power 8%Loans for Supporting Greater Openness 31%Foreign Trade Loans 34%Urban (shanty house) 26%Public re11%Intl Cooperatio n Loans 26%Overseas Loans9%Source: China DevelopmentBank,HSBCSource: Exp

55、ort-import Bank of China,HSBCBreakdown of loan outstanding, Agricultural Development Bank ofChinaAssitanceOthersagainstAssitanceOthersagainst24%poverty27%Infrastructure46%Source: Agriculture Development Bank of China, HSBCWe assume that 40% of policy bank bonds net issuance amount, as Fig 15 shows,

56、have not been captured by our analysis above, and thus should be added back to Chinas consolidated public sector deficit. In other words, we assume that 40% of policy bank bonds net issuance proceeds go to other government-sponsored initiatives such as Belt and Road Initiative, nurturing strategic i

57、ndustries, assistance against poverty, trade financing and etc. that are not captured by debt of the governments, CRC or LGFVs. This is a non-perfect estimation based on non-perfect information. We think such an estimation is reasonably conservative, given that the amount of policy banks loans is si

58、gnificantly bigger than their bonds outstanding, as Table 16 shows because, besides bonds, they have other borrowing channels.Net issuance, policy bankbondsRMBbnRMBbn-201320142015201620172018Net issuance, policy bankbonds,RMBbnNetissuance,policybankbonds/GDP,RHS2.5%2.0%1.5%1.0%0.5%0.0%Source: Wind,

59、HSBCBalance sheet summary of three policybanksRMBbn, as of 2017China Development BankExport-import Bank of ChinaAgricultural Development Bank ofChinaTotal of three policy banksTotal assets15,9593,6416,22125,821Bonds outstanding8,4472,4713,81314,731Loan outstanding11,0372,7464,65618,439Total liabilit

60、ies14,7193,3396,08624,144Source: China Development Bank, Export-import Bank of China, Agricultural Development Bank of China, HSBCConsolidated public sector deficit and debt levelThe above analysis is summarised in Fig 17. The chart shows the consolidated public sector deficit from 2013 to 2018 and