China’s plan to abolish the Ministry of Railways while continuing its support for the industry is positive for the nation’s banks, according to Moody’s Investors Service.
Chinese lenders hold a “large” portion of the 759 billion yuan ($122 billion) of bonds issued by the ministry, with total liabilities from the government body reaching 1.3 trillion yuan, or 2 percent of the nation’s loans, the ratings company said in a Credit Outlook report.
China will transfer rail regulatory functions to the Ministry of Transportation, the State Council said last week in a statement. Commercial operations and liabilities will go to the newly established China Railway Corp., a state-owned enterprise that will receive government backing for its debt as the ministry did, according to the statement.
“We expect the CRC to continue to benefit from strong public support, but to have stronger corporate governance and more funding channels than its predecessors,” Bin Hu, a Hong Kong-based analyst at Moody’s, wrote in the report.
The former ministry had more than 2 million employees and 2.66 trillion yuan of debt, larger than Denmark’s annual gross domestic product. Liu Shiyu, a deputy governor of the People’s Bank of China, said this week he had received many calls from institutional investors about the railway bonds in the wake of the announcement.