By Kang Yi (康怡)
News, page 3
Issue No. 546, Nov 28, 2011
Translated by Zhu Na
Original Article: [Chinese] 

 
The Economic Observer: Right now, all of the country’s investment and financing platforms seem to have debt problems. Chongqing has a large number of infrastructure projects, what is the situation there?
Cui Jian: With the exception of financial institutions, [Chongqing SASAC] enterprises’ debt to equity ratio is limited to about 60 percent. We allow companies some leeway around this point, but not too high and or too low. If a company’s debt ratio is too low, we believe that it still has room for growth […] But if it’s too high, we will feel that [the company] is at risk. Currently, our standard is 64 percent. It’s common that we exceed the target by three of four percentage points, but we don’t allow more than that. No one has yet suggested that Chongqing’s eight major investment groups are at risk.

EO: How do you keep the debt ratio within that range?
Cui: Firstly, Chongqing municipal government doesn’t provide direct financing guarantees for the eight major investment groups. If one of them wanted to borrow 10 billion yuan, and Chongqing government provided a guarantee, then the default risk would be taken on by Chongqing municipal government, which isn’t acceptable.
Secondly, the eight major investment groups aren’t allowed to guarantee each other’s debt. […] If they did, once one group encountered problems, it would drag the other seven groups into the mire. […]
Finally, we expressly forbid the redirection of funds. The central government allocates finances to specific groups for specific projects. Even though this money might be sitting in one group’s bank accounts while other projects are short of funds, we prohibit the transfer of these resources.

EO: How do you define the role of local state-owned enterprises (SOEs)?
Cui: I think the objective of local SOEs is to play a leading role in the local economy, unlike central-administered state-owned enterprises, which seek to become world leaders. Through its SOEs, Chongqing created the “third finance,” [第三財政 - state-owned assets undertaking public projects]  which generates tax and dividends, helps the government with investment and reduces fiscal expenditures, thereby enhancing local government’s urban-rural development, and making possible the transformation of public finance. I think this ought to be the focus of local SOEs.

 
EO: Chongqing’s state-owned economy is very strong, does this mean that the private sector will be squeezed?
Cui: The growth of Chongqing’s state-owned assets didn’t come at the expense of people’s interests or squeeze out private investment. On the contrary, privately-owned enterprises in Chongqing have developed faster than SOEs. Among the 12 western provinces and cities, Chongqing’s state-owned and private-owned enterprises are the most developed.
There are also statistics to show this; the private sector’s share in Chongqing’s economy has grown to 60% [in 2010] from 26% when the city first became a municipality directly under the Central Government [one four such cities, the others being Beijing, Shanghai and Tianjin]. This has demonstrated that while the state sector developed rapidly, the private sector did too. At present and in the future, Chongqing won’t face the problem of “state sector expansion and private sector contraction.”

EO: What Chongqing’s position on its SOEs “going out”?
Cui: We promote a combination of “going out” and “bringing back”, enabling us to “kill three birds with one stone” i.e. SOEs “going out” by investing overseas, conducting mergers and acquisitions or launching operations abroad and “bringing back” by reinvesting in Chongqing. That means Chongqing can guarantee long-term social and economic development.