Concerns over growth, debt pressure China’s credit ratings: Coface

HONG KONG – The world will most likely witness another year of “muddling through” in China, with mounting risks as the authorities continue to try to strike a balance between restructuring and growth, says Coface. The global credit insurer says its projections show that growth will slow over the remainder of 2017.

Chinese authorities will have a delicate balancing act between tightening liquidity and sustaining growth, it says, pointing out that after registering a stronger-than-expected performance in Q1 2017, the Chinese economy has started to show signs of moderation.

“We expect this trend to continue throughout the remainder of the year, in line with our year-end forecast of 6.5%,” Coface says.

“Slower housing prices will add to sector woes. Sectors most exposed to the sluggish housing market include: (1) metals, (2) construction, (3) household electronics, and (4) financial institutions.
“Loans to developers and mortgages account for almost 25% of China’s total loans, making banks (mostly City Commercial Banks) particularly vulnerable.”
Coface says higher offshore funding costs will cast shadows for some buyers.

“Pressure has been mounting since the (ratings) downgrade, particularly for corporates with close links to sovereign debt and high levels of debt denominated in dollars.

“Offshore issuance has been exploding since the middle of last year, reaching almost US$80 billion YTD in 2017 (according to figures compiled by Bloomberg).

“The overwhelming majority of these issuers are concentrated around (1) Chinese financial institutions, (2) infrastructure funds, and (3) real estate developers.

“Moreover shadow banking remains a key issue, as, according to Moody’s, it increased by 20 % last year, to reach RMB 64.5 trillion.”  www.coface.com (ATI).