China shows faster pace of economic restructuring, analysts say
But Beijing continues to face external risks such as punitive US trade measures, as it is reliant on technology from advanced economies
China’s economic restructuring is picking up pace, with its manufacturing sector showing signs of a shift to higher value-added areas – a credit positive, according to analysts.
China has been cutting excess capacity in heavy industry in recent years to revive profitability in the sector and reduce high debt levels, while encouraging factories to shift to higher-value production such as robotics and aerospace under its “Made in China 2025” initiative.
“If such measures lead to a reallocation of labour and capital resources that shift credit towards sectors with higher productivity growth, it will support the Chinese government’s credit quality by increasing its debt-carrying ability,” Marie Diron, managing director of Moody’s Sovereign Risk Group, said.
But liabilities of state-owned companies continue to outpace economic growth, even as authorities have been making some progress in reducing risks in the financial system, she said.
China and the rest of Asia also continue to face external risks such as punitive US trade measures, as Beijing remains reliant on technology supplies from the America and other advanced economies in the short term.
But in the longer term, China will stay focused on developing hi-tech sectors, with or without US supplies, as they are key to its growth plan, said Lillian Li, vice-president of the company’s credit standards and research group.
“China has the financial and policy levers to pursue this plan, and sustained higher public-sector spending would not materially alter its fiscal strength and sovereign credit profile,” she said.
The United States and China have threatened tit-for-tat tariffs on goods worth up to US$150 billion each, as President Donald Trump pushes Beijing to open its economy further and address the bilateral trade imbalance.
The credit agency said it expects more credit defaults in China as tighter funding conditions make it harder for companies to refinance their debt.