The General Office of the Central Committee of the Communist Party of China ("CPC") and the General Office of the State Council have recently issued the Guiding Opinions on Strengthening Asset and Liability Constraints on State-owned Enterprises (the "Opinions").
The Opinions state that, the average debt-to-asset ratio of State-owned enterprises (SOEs) will be reduced by around two percentage points by the end of 2020, compared with the figure at the end of 2017, and thereafter, the debt-to-asset ratio of SOEs will be basically kept at the average level of companies in the same industry with the same scale. Further, the Opinions outline concrete requirements for this purpose, including "defining by category asset and liability constraint indicators for SOEs", "improving SOE's own asset and liability self-constraint mechanism" and "strengthening the external asset and liability constraint mechanism for SOEs". In addition, the Opinions explicitly state that in principle, the average debt-to-asset ratio of all enterprises above the designated size in the industry concerned last year will be taken as the benchmark line. Five percentage points and ten percentage points, higher than this benchmark line will trigger the current year's warning system for debt-to-asset ratio and close monitoring system for debt-to-asset ratio respectively. The financial institution shall not offer further debt financing to a SOE that has been placed on the list of SOEs under close supervision, in principle.