Risks to China’s financial system to rise as property downturn persists, Moody’s says
- The outlook for China’s property sector remains negative because of sluggish demand and weak contracted sales, Moody’s says
- Growth forecasts for China cut to 3 per cent this year and 4 per cent in 2023
The risks to the stability of China’s financial system are rising because of the downturn in the country’s property sector and a slowing economy, Moody’s Investors Service said.
The rating agency said in a report released on Thursday that its outlook for the nation’s property sector “remains negative on sluggish demand and weak contracted sales”, although policy support offered by the Chinese authorities could help ease the liquidity burden of some developers.
While the property sector downturn is testing China’s systemic stability, at the same time pandemic disruption and rising geopolitical tensions are also weighing on growth, the report said.
“Although the authorities continue to have tools to prevent a systemic financial crisis, some of these buffers are weakening, and could pose risks if the property downturn endures,” Lillian Li, a Moody’s vice-president and senior credit officer wrote in the report.
As a result of the weakness surrounding the property industry, Moody’s cut its growth forecasts for China to 3 per cent this year and 4 per cent in 2023.
China’s securities watchdog on Monday announced five measures, including allowing cash-strapped mainland developers to raise equity refinancing after a ban of six years. Analysts and industry players hailed the move as a big step to boost the property sector following a 16-point rescue plan earlier last month.
Six major state-owned banks extended loans totalling 1.27 trillion yuan (US$180 billion) to at least 17 developers last Thursday, a day after Beijing confirmed the rescue plan.