The latest data shows that the phenomenon of overdue commercial papers by Urban Construction Investment Companies (UCTs) in multiple cities in China is still ongoing, indicating that UCTs are still facing tight funding situations. UCTs are investment and financing platforms for major city governments in mainland China, and this reflects the financial constraints faced by local authorities.
In early July, the Shanghai Bill Exchange disclosed the “List of Acceptors Overdue as of June 30, 2024”.
The list shows that as of June 30, 2024, there were a total of 1397 acceptors who had three or more instances of overdue bills with overdue balances at the month-end or had instances of bill overdue behavior in the month. According to statistics from the Fixed Income Research Team of Huatai Securities, in June 2023, 29 UCTs issued overdue commercial papers, amounting to 780 million yuan, with 8 UCTs being disclosed for overdue acceptances for the first time and 9 UCTs having continuous bill defaults.
According to a report on Caixin’s website on July 12th, based on incomplete statistics, the June list of overdue commercial papers includes many UCT companies that have issued bonds and are controlled by local finance bureaus or state-owned enterprises: such as Mile Industrial Park Investment and Development Co., Ltd., Shandong Zhengfang Holdings Group Co., Ltd., Lunan (Zaozhuang) Economic Development Investment Co., Ltd., Tongxiang Chongde Investment Development Group Co., Ltd., Linqu Yishan Industry Co., Ltd., Qihe UCT Construction Group Co., Ltd., Jiangsu Yinbao Holdings Group Co., Ltd., and Kaifeng City Operation and Investment Group Co., Ltd. The overdue amounts of commercial papers for UCTs range from several million to hundreds of millions of yuan.
Apart from UCTs, some companies under the umbrella of UCTs also appear on the list of continuously overdue commercial papers. Caixin’s report indicates Kunming City Urban Construction Investment Development Co., Ltd. (accumulated overdue amount of over 271 million yuan) and Zunyi Daqiao Construction (Group) Co., Ltd. (accumulated overdue amount of over 319 million yuan) are among them.
Public information shows that Kunming Urban Construction’s largest shareholder and actual controller is the Kunming State-Owned Assets Supervision and Administration Commission, and there are currently 6 bonds outstanding. Zunyi Daqiao is the largest UCT platform in Zunyi City.
According to the “2023 UCT Commercial Paper Overdue Panorama Analysis” by China Chengxin International, a total of 79 UCTs experienced overdue bills in 2023, mainly at the district and county level. By the end of 2023, 28 companies had not completed payments, involving an amount exceeding 3.2 billion yuan. In terms of the number of acceptors, Shandong, Guizhou, and Yunnan had 19, 12, and 10 UCT enterprises respectively on the 2023 overdue list, ranking among the top three nationwide.
Caixin believes that the continuous overdue phenomenon of commercial papers by UCTs in many regions indicates that the financial chain of some UCTs is still under tension.
Commercial Acceptance Bills (commercial papers) are bills of exchange issued and accepted by payers, generally issued by core enterprises as payment vouchers to small and medium-sized enterprises, and must have a genuine transaction basis.
The financing model of commercial papers was pioneered a few years ago by real estate enterprises in urgent need of funds, and subsequently, many local UCTs also adopted this financing model.