This report does not constitute a rating action. Debt trouble at a subsidiary of a local Chinese SOE is raising questions about government support for state-owned companies. Property-related losses, in particular, could test the tolerance and capacity of local governments. Zhuhai Huafa Group Co. Ltd. (unrated)'s property segment has served as its profits pillar but could now turn into a stumbling block. The group's flagship property subsidiary, Zhuhai Huafa Properties Co. Ltd. (unrated), is reported to be seeking bank loan extensions while some trust loans have been overdue. Such news has already caused market volatility both for Chinese offshore and onshore bonds even as the group has kept up with all recent bond interest repayments. Huafa Group, as the largest
