The assumption of likely government support will continue for most rated Chinese nonfinancial SOEs (A1 Stable), said Moody’s recently.
"We believe the Chinese government remains able and willing to provide extraordinary support — if needed to prevent default — to SOEs that are strategically important, have strong government linkages and are leaders in their respective industries," said Gary Lau, a Moody's Managing Director.
Most SOEs (state-owned enterprises) Moody's rated have these characteristics, Lau noted.
“However, SOEs that defaulted, which Moody's does not rate, have weak credit quality and do not have these attributes," said Kai Hu, a Moody's Senior Vice President.
Nevertheless, the likelihood of support differs by SOE and reflects various factors, according to the credit rating agency.
Key factors include the linkage and strategic importance of an SOE's primary businesses to the central government, and its market position and scale, Moody’s added.
Reputational or systemic risk if the SOE defaults and its contribution to government fiscal income or employment are also considerations, but to a lesser degree, the firm pointed out.
The availability of government resources and support channels also influence the likelihood of support, Moody’s observed.
Similarly, the likelihood of support for SOEs' subsidiaries reflects their importance to their parents or indirectly to the government, the credit rating agency said.
However, the likelihood of support is low for some SOEs in competitive industries, Moody’s noted.
These SOEs have low strategic importance and/or weak linkages to the government or their parents, said the firm, adding that these SOEs' ratings are close to their standalone credit profiles accordingly.