Home / World Economy / World Economy News / Moody’s – Property, policy and pandemic pose risks to China’s stable economic outlook

Moody’s – Property, policy and pandemic pose risks to China’s stable economic outlook

China’s (A1 stable) growth will slow to 5.3% in 2022, from an estimated rate of 8.0% in 2021, with the potential for fresh movement curbs due to the pandemic and supply chain disruptions posing risks to the forecast, according to Moody’s Investors Service in a new report.

“The property market slowdown is contributing to the deceleration in GDP, but fiscal and monetary policies will likely step in to limit steep growth declines and systemic financial risks,” says Lillian Li, a Moody’s Vice President and Senior Credit Officer.

China continues to pursue multiple policy goals, including deleveraging, addressing income inequality and moving toward a net-zero emission target, which could bring credit benefits if policy objectives are met over the longer term. However, there are transition risks around regulatory uncertainty, which could deter foreign investment, diminish the role of private sector, discourage innovation and big-ticket consumption.

As China’s policy pursues deleveraging, the overall leverage ratio will stabilize. Leverage in the private sector will remain stable as companies’ incentives to raise debt for investment are balanced by better conditions for debt repayment. Household leverage will be reasonably stable as regulations will likely keep property price increases under control. Given the central government’s commitment to deleveraging and containing contingent liabilities, public sector debt may only rise modestly and gradually stabilize as the economy recovers.

Increasing costs from supply chain disruptions and regulatory uncertainty arising from decarbonization and deleveraging will likely constrain corporates’ earnings growth in 2022. There remains significant variation across sectors. Funding access will continue to diverge between companies with stronger and weaker credit quality.

Meanwhile, systemic risk to the financial sector is limited as monetary policy will likely support a stable liquidity and credit environment. A prolonged property downturn could weaken financial institutions’ asset quality, although Moody’s expects the government to take a gradual and cautious approach toward deleveraging the property sector and prevent a hard landing.

Moody’s affiliate China Cheng Xin Int. Credit Rating Co. Ltd. (CCXI) will host the 2022 Credit Outlook Conference, titled, “Challenges and credit trends in China’s post-pandemic economic recovery”. The Chinese-language conference will have simultaneous English translation, and will be held online on Thursday, 9 December 2021.
Source: Moody’s

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping