China’s policy, including its reopening and policy measures that refocus on growth rather than regulatory tightening, will likely drive a recovery of private consumption and stabilisation of the property market from a low base, said Moody’s recently.
At annual meetings of China's (A1 stable) top legislative and advisory bodies, policymakers set an economic growth target for 2023 of 5%, which Moody’s said is in line with its growth forecast.
The Chinese government has maintained its long-term objective of reducing financial risks, including those related to the property sector and local government debt, said Lillian Li, a Moody's Vice President and Senior Credit Officer.
“China’s policy support will have a modest overall impact on the country's sovereign credit, and benefit consumer goods and services companies,” she noted.
China's modest fiscal policy expansion, reflected in support from fiscal budgets and bond issuance from regional and local governments (RLGs), mitigates credit risks for local government financing vehicles (LGFVs) and infrastructure companies, the credit rating agency said.
This will limit the increase in RLG debt risk in China and leverage risk for state-owned infrastructure companies, the firm added.
However, RLGs' funding gap will grow, implying a rise in LGFV debt and contingent liability risk for the central government, Moody’s noted.
Accommodative measures aimed at maintaining a low-cost credit environment will likely drive bank loan growth higher than last year and support banks' net interest income, according to Moody’s.
In addition, efforts to resolve property developers' credit risk will mitigate asset quality pressures of financial institutions, the firm said.
Meanwhile, measures to reduce local governments' debt risk will hurt financial institutions' profitability and asset quality, the firm added.
The government views steady conditions in the property sector as important to short-term growth and economic stability, according to Moody’s.
Enhanced policy support this year will narrow the decline in property sales, benefit good quality developers, raise demand for building materials, and benefit mortgages backing related securities portfolios, the firm said.