Qingdao Haifa State-owned Capital Investment And Operation Group Co., Ltd.' s (Qingdao Haifa) Baa3 issuer rating is based on the Qingdao government's capacity to support (GCS) score of a3 and our assessment of how the company's characteristics affect the Qingdao government's propensity to support, resulting in a three-notch downward adjustment.

The GCS score reflects Qingdao's status as a centrally planned city, one of the higher administrative levels in our assessment of the hierarchy of regional and local governments (RLGs) in China (A1 negative); and the city's relatively solid economic and fiscal profiles, and relatively high contingent risks from the local state-owned enterprise (SOE) sector.

The issuer rating reflects the Qingdao government's propensity to support Qingdao Haifa because of the government's 100% ownership of the company; the company's public-policy role in developing the Qingdao West Coast New Area and track record of receiving government cash payments; and its good access to domestic funding.

However, the company's three-notch downward adjustment from the Qingdao government's GCS score reflects its relatively large exposure to debt-funded commercial business activities.

On 25 January 2024, we confirmed Qingdao Haifa's issuer rating at Baa3 and changed its rating outlook to negative. Previously, the rating was on review for downgrade since December 6, 2023.

The rating confirmation of reflects Qingdao Haifa's reduced contingent risk, which removes the drag in the government’s propensity to support. The company's contingent risk, as measured by lending and guarantees to third parties, fell to 2.2% of reported equity as of 30 September 2023, from 5.8% as of year-end 2022 and 12.8% as of year-end 2021. We expect the company to maintain the contingent risk at a low level. This improvement offsets the rating impact by on the company’s ratings from the decline of Qingdao city’s GCS score to a3 from a2.