The reports of slowdown about Chinese economy is very real as even though its government is trying to infuse cash into the markets by reducing reserve ratio of banks debts of several large corporates are growing say rating agencies. The details of GDP figures for last year that were released by Chinese government this week showed that its economy is growing at its slowest pace since three decades. Though its current pace of growth at 6 percent which is still a great achievement for many small countries it represents a slowdown for China which has witnessed unprecedented for several years now.
This slow growth represents lower profitability for its businesses that still have large debts to repay and higher risk levels for investors holding their bonds. According to S&P Global Ratings report the current slowdown is likely to weaken profitability levels across all sectors in corporate China. The report enumerated that private firms’ debt-servicing capabilities are likely to decline as demand for non-essential products has already come down. It added that government’s effort to reduce debt levels of corporate China may stop soon or reverse. The policy makers in China have made efforts to steer nation towards sustainable growth but even so default of corporates may rise modestly this year.
Fears of weakening economy and debt burden has pushed authorities in China to put brakes on fresh lending and put fresh curbs on non-traditional loans that are recognized as shadow banking. Stimulus like cutbacks on taxes and extension of credit to fundamentally sound corporates is also not providing much relief due to the ongoing trade war with United States. Moody’s has also stated that combination of trade war and slowing economy are squeezing down on corporate China making it tough for them to repay debts. Director of Huarong Intl Securities stated that though his firm is optimistic that trade war will end amicably but if there is a spike in trade friction then it could lead to serious issues.
