Moody's analysts say govt's welfare, healthcare spending is credit positive

Moody's analysts said that the Chinese central government's larger responsibility for spending on basic social welfare and healthcare services in the country, starting in January 2019, is credit positive.

The move will help address the mismatch between the limited fiscal resources of Chinese regional and local governments, or RLGs, and the RLGs' significant regional social spending responsibilities, according to a report issued by Moody’s on Tuesday.

"The impact of the spending reform will vary by region, with developing regions benefiting more because their fiscal burdens will be relieved to a greater extent," said Amanda Du, a Moody's vice president and senior analyst.

"Specifically, the RLGs will remain responsible for the delivery of most social services, but we expect that transfers from the central government, particularly balancing transfer payments or new dedicated transfer payments, will increase to support the change in responsibility for social welfare spending," Du said.

Moody's report said that the reform package covering 18 spending items is worth 1.9 trillion yuan ($275.7 billion), or 11 percent of the RLGs' total general budgetary expenditure in 2017. Almost all of this spending was previously the responsibility of RLGs. With the reform, responsibility will be shared with the central government, mitigating RLG funding shortfalls.

The 36 upper-tier RLGs in China, as the rating agency said, are categorized into five groups, with each subject to a different spending split with the central government. Regions in Central and Western China will see a greater portion of spending borne by the central government, while more developed areas, such as Beijing and Shanghai, will see a smaller shift.