Fund created to stabilise state enterprises

Principle aim of guarantee fund is to backstop SOEs when paying back debts 

Fund created to stabilise state enterprises
Backdrop to Backstop: The State Council has created the SOE stability fund. 

(ATF) China has sought to boost stability and confidence in its state-owned-enterprises (SOEs) by creating a fund to safeguard their stability. 

The Central Enterprises Credit Guarantee Fund was established in Beijing primarily to provide a backstop to SOEs when their bonds mature and they have to repay leaders. 

The fund unites 31 Chinese central enterprises who have jointly funded and initiated the establishment of the fund as a market-oriented way of making public offerings. 

The total size of the fund is planned at 100 billion yuan ($14bn), the first 10bn-yuan phase of which is earmarked for preventing and defusing bond risks, Security Times reported.

Yuan Ye, a member and deputy director of the State-owned Assets Supervision and Administration Commission of the State Council, said the fund would help establish a “normalised, standardised and market-oriented central enterprise bond redemption risk mitigation mechanism”. It would help consolidate the security of central enterprises funds and firmly guard against stress during downturns. 

READ MORE: Central SOEs urged to increase profitability, deepen reform 

At the same time, it will realise the superposition and enlargement of the credit of central enterprises, further enhance the capital market’s confidence in central enterprises, support central enterprises’ financing in the domestic bond market, improve the quality and efficiency of central enterprises to ensure stable growth, accelerate structural adjustment and achieve high-quality development.

According to reports, the Central Enterprises Credit Guarantee Fund is the central enterprises’ vehicle for implementing the Communist Party Central Committee and State Council’s broader initiative to mitigate systemic financial risks.

It will operate under the principle of "limited assistance, emergency protection, controllable risks, and market operation”, reports said. The fund will actively prevent and dissolve risks among of central enterprises’ bonds, enhance their overall credit and ensure the stable operation of financial markets.

SOEs prospered in June, notching up their first year-on-year monthly growth, the Ministry of Finance said on Thursday.

SOE profits rose 6% last month and revenue increased 7.1%, according to a statement on the website of the Ministry of Finance. SOEs faced unprecedented challenges including the coronavirus epidemic and slumping oil prices during the first quarter.

READ MORE: State enterprises bankroll recovery in hard-hit Hubei