China's moderate policy support and the lack of a growth target for 2020 suggest that recovery from the coronavirus recession will be slow, said Moody’s Investors Service recently.
Several of the government's credit and tax policies will mitigate corporate financial pressure, but weak economic growth and other coronavirus disruptions will constrain revenue and profit growth prospects, the credit rating agency noted.
Given these conditions, Moody's said it has lowered its 2020 earnings forecast for rated Chinese corporates, with downward revisions as much as 15%–30% for companies in the auto and auto-related, oil and gas, and oilfield services sectors.
Meanwhile, overcapacity and weak demand for oil and gas will hurt refiners' profit margin, which will decline in 2020 and remain weak through 2022, Moody’s predicted.
While the two largest state-owned refiners, China National Petroleum Corporation (CNPC, A1 stable) and China Petrochemical Corporation (Sinopec, A1 stable), should be able to withstand the pressure on margins, smaller regional refiners will struggle to maintain credit quality, given their smaller scale, less diversified operations and limited financial buffers, the firm added.
In addition, regional banks in China are most vulnerable to virus disruptions, given their weak funding and geographic and customer diversification, Moody’s pointed out, adding that credit deterioration is expected to intensify for a much broader range of lower-rated banks if there’s a protracted recession.