Comments from ratings agency Moody's on China:
- China's pursuit of growth target risks extending economic imbalance
- China's relatively robust GDP growth of 6.9% in 2015 owed to significant monetary and fiscal stimulus
- Policy support in the pursuit of growth targets is likely to persist in 2016, with the credit-negative effect of postponing deleveraging and the reduction of excess capacity
- In the context of equity and currency market volatility and persistent capital outflows, Moody's further notes that it is becoming increasingly difficult for the government to achieve its growth target while steering the economy toward a more balanced structure
- In Moody's view, China's authorities will allow the fiscal deficit to widen to around 2.5-3% of GDP in 2016, after 2.7% in 2015 and under 2% in the previous five years, to provide room for policy support
- Government debt will rise slightly above 40% of GDP, still in line with similarly rated peers.
- Moody's concludes that while fiscal and monetary policy supported overall GDP growth last year, they have not raised profitability in those sectors that the economy is rebalancing away from, such as heavy industry
- As stimulus continues, it is likely to increase system-wide leverage - or at least prevent it from falling - without boosting profitability. This will raise debt serviceability risks.
Bolding in the above is mine
Some gnarly issues for Chinese authorities to cope with highlighted by moody's.
