Workers at the Dalian production base of Dongbei Special Steel Group Co in Dalian, Northeast China's Liaoning Province Photo: CFP

Moody's Investors Service has changed to stable from negative the rating outlooks for 22 State-owned enterprises (SOEs) based on several factors, including the assessment that the central government's support for these companies is unlikely to change during the medium term, the rating agency said in a press conference in Shanghai on Tuesday.

The 22 SOEs include China State Construction Engineering Corp, China Railway Construction Corp and Shanghai Electric (Group) Corp. Their rating outlooks were changed by Moody's to negative in March due to the change in the outlook on the sovereign credit rating. The agency lowered its outlook on China's credit rating to negative from stable in March.

"Recent evidence indicated that the central government's support for these SOEs is unlikely to change in the medium term," Hu Kai, senior vice president of Moody's, said at the conference.

The 22 SOEs' ratings are "resilient to a hypothetical downside situation in which China's credit rating is downgraded," Hu said, noting that their individual credit profiles are at "appropriate" levels. 

All these factors together support the change in outlook, Hu explained.

The 22 SOEs are in strategic sectors or play key roles in the country, and they have benefited from the Chinese government's statements reaffirming support for them in recent months, according to the rating agency. 

In September, the Ministry of Finance and the State-owned Assets Supervision and Administration Commission issued a joint document indicating that the government will concentrate investment and support for SOEs on those that focus on national security and essential public services to boost economic development.

However, SOEs engaging primarily in commercial activities will get less support from the government, particularly if they are in the overcapacity industries including coal and steel, said the agency.

"Outdated capacity needs to be cut by the market and administrative means, which will help ensure the sound development of these sectors," Wang Xianqing, director of the Institute of Circular Economics with the Guangdong University of Finance & Economics, told the Global Times on Tuesday.

"But it doesn't mean the country will stop supporting all the SOEs in the sectors suffering from excess capacity," Hu told the Global Times on Tuesday, noting that the country will reduce support gradually.

From October 2015 to June 2016, domestic corporate debt defaults all took place in sectors suffering from excess capacity, said the agency.

State-owned Dongbei Special Steel Group Co has formally entered into a bankruptcy restructuring process after a court filing by one of its creditors, Reuters reported on October 10. The company saw its first bond default in late March, which helped lead to a sharp sell-off in the corporate debt markets, according to Reuters.

Also, recent defaults including Shanxi Huayu Energy Co of Chinacoal Group and Sinosteel indicate the country is gradually reducing support for companies in the overcapacity sectors of metals, mining and steel, the agency pointed out.

"The default risks are still under control thanks to the country's sound financial risk control system," Wang said, noting that there will not be large-scale defaults.

Moody's maintained a negative outlook for other 57 SOEs mainly due to the pressure of the companies' credit status as well as the expectation that they will get less support from the government, said the agency。