Yicai:

At the end of June this year, the debt-to-asset ratio of the centrally-administered SOEs was 64.9%, a year-on-year decrease of 1 percentage point. What are the SASAC's considerations for preventing and resolving major risks for the next step? In particular, what specific measures will be taken to prevent the default risks of SOE bonds? Thank you.

Peng Huagang:

Thank you for your questions. Preventing and resolving risks is an issue that the SASAC and central SOEs attach great importance to. In the past few years, we have done a lot of related works, and the results are excellent. The most direct effect or the most obvious result was that the debt-to-asset ratio of central SOEs at the end of June was 64.9%, a decrease of 1 percentage point year-on-year. On the whole, the ratio has remained stable, and the debt risks are under control. In recent years, there has not been a single bond default incident relating to central SOEs.

In the next stage, we will continue to manage and control central SOEs' debt risks. The works will be done mainly in the following aspects: First, we will control the debt ratio. We attach great importance to debt ratio. We will formulate warning lines and control lines according to each industry's situation; implement categorized control and operate on a one-policy-for-one-enterprise basis; set an annual target of the debt ratio for each central SOE and follow it up for implementation, so as to keep central SOEs' overall debt level stable. Second, we will put key enterprises under control. We will strengthen the dynamic monitoring of debt risks, accurately identify high-risk enterprises through the debt risk quantitative assessment system, and adopt special regulatory measures to resolve and handle the risks of different enterprises with different policies. Third, we will keep high-risk businesses under control. We will strictly control the risk of bulk commodity trade that is not the main business of an enterprise and only yield a low gross profit. We will strictly control the risks of such businesses as financial derivatives, financing guarantees and public-private partnership (PPP). We will also resolutely prohibit trade financing business. In the past few years, we kept rectifying trade financing activities, and now we strictly prohibit the development of this business.

In terms of preventing bond risks, we have established a set of bond risk prevention mechanisms for central SOEs. First, we strictly limit the proportion of bond issuances. We strictly control the proportion of high-risk corporate bonds in interest-bearing debt, and the proportion of short-term bonds in all bonds, so as to prevent the risk of centralized redemption. Second, we will strictly control the use of bond funds, focus on main businesses and industries, strictly prevent funds from circulating within the financial sector without investing into the real economy or being diverted out of the real economy, and strictly prevent any misappropriation of funds for illegal arbitrage. Funds raised through bonds must be invested into the real economy and are not allowed to be used in other sectors. Third, we will strengthen bond risk monitoring, paying close attention to the bond default risks of enterprises with severe operating losses and tight cash flow, and make arrangements for redemption funds in advance. Fourth, we will establish a credit guarantee fund to encourage enterprises to steadily resolve bond default risks in accordance with market principles, laws and international standards. Enterprises face many risks in market operations, but financial risks and bond risks are very direct risks. Therefore, the SASAC and central SOEs attach great importance to this work, and the results have so far been quite good. Thank you.