Headwinds
The "pressure points" include a rapid build-up of debt, significant asset price inflation (especially in real estate) and an expansion of unregulated segments of the financial sector.
However, the report warned that "major imbalances" created by a rapid debt accumulation could "erode credit quality" over time. Moody's nevertheless maintains an Aa3 negative rating on China.
"China's domestically-funded and state-backed financial system, combined with its wide range of policy tools, act as powerful mitigants to help manage systemic risks in the near term," said Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific. "The authorities are aware of the risks associated with rapid financial liberalization. We therefore believe they will be cautious in their approach and will continue applying existing capital controls more rigorously over a prolonged period."
The report added that the willingness of China's government to employ policy tools "significantly decreases" the risk of a contraction in the supply of credit or widespread disruption to financial intermediation.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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