Fitch Ratings: Limited Credit Impact from China's New Vehicle Classification for Toll Roads

Shenzhen International Holdings

10/06/2019 09:45

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-June 10: China's new vehicle classifications for toll 
roads will have little impact on the ratings of toll-road operators including 
Yuexiu Transport Infrastructure Limited (YXT, BBB-/Stable), Shenzhen Expressway 
Company Limited (SZE, BBB/Stable) and parent Shenzhen International Holdings 
Limited (BBB/Stable) as the drop in collections will be minimal and will be 
mitigated by an improvement in traffic, Fitch Ratings says.

The revisions, released by the Ministry of Transport on 31 May 2019, will take 
effect from 1 September 2019, replacing the old standards adopted in 2003. The 
new standards and the recent measure to remove physical tollbooths at provincial 
borders represent the authority's increasing efforts to deepen the sector's 
reforms and drive free-flowing traffic in the nation's toll-road system. The new 
classification standards also aim to make the vehicle classes used for charging 
tolls uniform with those printed on licenses issued by the Vehicle Registration 
and Licensing Department, which will reduce disputes when collecting payments.

Key changes in the new standards include reclassifying passenger vehicles with 
eight and nine seats from Type II to Type I; listing special-purpose vehicles as 
a separate vehicle type; classifying and charging goods vehicles toll according 
to the total number of axles, length and maximum permitted weights with the 
first as the primary parameter and length and maximum permitted weights as 
secondary factors, instead of the current system of charging by vehicle class 
and weight. Fitch expects the first change to result in only a slight drop in 
the average toll per vehicle in the short term after the implementation of the 
new standards as eight- to nine-seat passenger vehicles make up less than 1% of 
total traffic for the roads owned by YXT and SZE. Fitch also expects the 
negative impact to be balanced out gradually by smoother traffic flow. 

There are some issues that remain unclear including the toll that will be 
charged for special-purpose vehicles, whether goods vehicles in the same class 
carrying different weights would be paying the same toll, and the treatment of 
overloaded goods vehicles. Fitch believes the transport department of each 
province or municipality will shortly take action to revise the prevailing 
toll-rate standards to accommodate the new classification standards. Fitch will 
monitor the progress for any impact on the rated companies.

China has the world's largest expressway network, with the mileage reportedly 
reaching 140,000km by end-2018. The nation has an ambitious goal to increase the 
mileage to 150,000km by the end of its 13th Five-Year Plan (2016 to 2020). 
Authorities have recently been advocating wider usage of contactless payment on 
toll roads, known as the Electronic Toll Collection (ETC) system in China, and 
providing free installation of ETC devices. More than 80% of registered 
automobiles will have installed ETC devices, and more than 90% of vehicles on 
freeways should be able to use the ETC system by the end of this year, according 
to the Ministry of Transport. The ministry in December 2018 issued a second 
draft of the long-awaited new Regulations on Toll Road Administration for public 
comments after the first revision to the regulation was published for feedback 
three years ago. The present rules were implemented in 2004 and seen as outdated 
and unfit for the fast-growing road network. 

Contact: 

Sunny Huang

Associate Director

+852 2263 9979

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central, Hong Kong

Media Relations: Yee Man Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@thefitchgroup.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

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