China first-quarter central government-owned firms’ profits rise, debt levels ease

BEIJING (Reuters): Total profit from China’s central government-owned firms accelerated in the first quarter while debt levels fell from the beginning of the year, suggesting Beijing is having some success with revamping its debt-ridden and lumbering state sector.

Profit in the first quarter rose 20.9% from a year earlier to 377.06 billion yuan ($60.03 billion), up from 15.2% for 2017 – the highest in five years, the country’s state assets regulator said on Monday.

For March, profit rose 17.8% from a year earlier to 169.87 billion yuan, the highest for a month on record, spokesman Peng Huagang told a news briefing.

The strong profit numbers could give Beijing leeway to push forward corporate deleveraging reforms as it aims to make State-Owned Enterprises (SOEs) more profitable and responsive to the market.

Indeed, the average debt-to-assets ratio was at 65.9% at end-March, 0.4 percentage point lower compared with the beginning of this year, Peng said.

SASAC said in January that China would cut the debt-to-asset ratio of central government-run enterprises’ by another two percentage points by the end of 2020.

The regulator encourages centrally-owned firms to list their traditional assets or introduce private capital into their traditional businesses and invest the money raised to forward-looking and strategic industries, Peng said.

SASAC will also increase efforts to clean up non-performing assets and strictly control high-risk businesses, including monitoring firms’ debt investments and their global businesses, Peng added.

Overseas investments by centrally-owned SOEs account for 60% of China’s non-financial outbound investments, Peng said.

China has already cut the number of enterprises administered by the central government to 98 from 117 in 2012 through a series of high-profile mergers and acquisitions.

The regulator will complete coal overcapacity cuts and firmly deal with “zombie firms,” Peng said.

He added that centrally-owned firms have cut 16 million tons of steel capacity and 62 million tons of coal capacity so far.