The absence of a GDP growth target together with the announced fiscal support measures indicate that China’s recovery from the impact of the coronavirus pandemic will be slow, said Michael Taylor, a Moody's Managing Director and APAC Chief Credit Officer recently.
Last Thursday China concluded the plenary session of the National People's Congress and the annual session of the National Committee of the Chinese People's Political Consultative Conference – the Two Sessions – during which Premier Li Keqiang released China's work report for 2020.
The work report sets out a moderate degree of fiscal support for the economy and accommodative monetary policies, without specifying a growth target for the first time since 2002.
"We expect the Chinese government will continue to provide a broad range of measures by leveraging state-owned sectors to support the economy, to an extent that is significantly larger than the direct fiscal numbers reflect on the government's balance sheet," said Lillian Li, a Moody's Vice President and Senior Credit Officer.
Key measures under the program include reducing taxes and fees companies have to pay, accelerating new infrastructure construction, promoting consumption, and various forms of support for employment and social security.
Moody's continues to view government policy as seeking to strike a balance between short-term support to the economy with the longer-term objectives of stability, prosperity and deleveraging, Taylor pointed out.
“For example, concerns over a rise in debt, asset prices and inflation are likely constraints on more extensive policy stimulus,” he said. “The global recession and persistent geopolitical uncertainty will make the balance between objectives even harder to achieve.”
The credit impact will vary significantly across sectors, according to Moody’s.
An economic growth rate in line with Moody's expectations will likely result in pressure on local government budgets and company profit margins, Taylor said.
According to Moody's, China GDP will likely grow by 1% in 2020, followed by a rebound to 7.1% in 2021, although downside risks remain.
Combined on-budget and off-budget fiscal measures to support the economy will total more than 8% of GDP, the credit rating agency said
State-owned enterprises and local government financing vehicles are likely to see their debt rise as they support government policy initiatives, Taylor predicted, adding that privately owned companies should benefit from measures designed to maintain employment.