Central support for transportation sector positive for RLGs

    Moody's Investors Service said in a new report that China's (A1 stable) increased central government support in the transportation sector is 
credit positive for both transportation issuers and regional and local governments (RLGs), and will help address the disparity in regional funding gaps.
  "The central government's increased oversight in the sector, coupled with its financial support for strategically important transportation projects, should lead to more balanced transport infrastructure development across China," said Ada Li, a Moody's Vice President and Senior Credit Officer.
  On 10 July, China's State Council announced a plan to define the fiscal power and expenditure responsibilities of central and local governments in the transportation sector.
  The notice is part of a series of social responsibility shifts between central and local governments, starting from 2019, covering social welfare, healthcare, foreign affairs, national security, education, and science and technology development.
  "The new policy also provides more clarity about the role of the central government and the availability of timely funding support, and will thus improve funding access and lower funding costs for strategically important transportation projects," added Li.
  The more explicit financial support from the central government will in particularly benefit less developed regions, which until now struggled to obtain funding from banks and bond investors due to concerns over the ability of RLGs and their own infrastructure companies to provide timely capital injections or other financial support.
  According to the State Council's notice, the central government will centrally manage the planning, policy and monitoring of the transportation sector, while RLGs and their owned enterprises will be responsible for the execution, such as construction, maintenance and operation.
  The central government will also make additional financial contributions to transport infrastructure, with some national motorways, border checkpoints, major canals and public service railways to be financed by the central government.
  In the first five months of 2019, total transportation investment increased 7.3% year-on-year to RMB1 trillion, while RLGs' general budgetary revenues grew by only 3.9% and government fund revenues declined by 4%.