(Yicai) Sept. 13 -- At least 40 state-owned enterprises based in China’s eastern Jiangsu province have given up being local government financing vehicles since the start of the year in response to regulatory requirements and a market-oriented shift, National Business Daily reported.

Pizhou Transport Engineering and Pizhou Yuantong Public Transportation, two SOEs based in Pizhou, a county-level city in Jiangsu, said yesterday that they will take full responsibility for their own profits and losses and no longer finance public works projects, as the local government’s hidden debt has been paid off, the report said today.

Other SOEs in Huai’an and Xuyi, a county under the prefecture-level city of Huai’an, and Jiangyin, a county-level city under the administration of Wuxi, have also made similar statements previously. Most are urban construction investment companies.

Local governments are the main source of business for this type of company and their fundraising and operations are much affected by them, the report cited Wu Zhiwu, senior director of research and development at credit rating agency CSCI Pengyuan, as saying. These firms are not fully competitive and need much local government support, Wu added.

After these companies gave up being LGFVs, relations between them and their local governments in terms of businesses, operations, and management has not radically changed, Wu pointed out.

But with the gradual marketization of these firms, local authorities will need to scale back intervention in their management and operations and change the management model, Wu said, noting that relations between the two will change slowly.

Despite decoupling, their credit relationship will remain close in the short term, according to a report by fixed-income analysts at Haitong Securities. But in the long term, the focus will shift to the sustainable profitability of urban construction investment firms and their ability to garner resources.

China’s budget law, which came into effect in 1994, stipulated that local governments do not have the ability to borrow money, so they set up special financing platforms, with urban construction investment firms responsible for them. But in 2014, the state stepped up local debt supervision, clarifying that government borrowing can be done through governments themselves and their departments and not through enterprises and public institutions.

Jiangsu’s gross domestic product grew 6.6 percent to CNY6.05 trillion (USD829.8 billion) in the first half of the year from a year earlier, second only to Guangdong province.

Editor: Futura Costaglione