China's ambitious GDP target to face hurdles amid property market stress

April 01, 2024 (MLN): It will be challenging for China to achieve its real GDP growth target for 2024 of “around 5%”, unveiled at the National People’s Congress annual legislative session, but the government is stepping up fiscal easing, cushioning the impact of lingering stress in the property market, says Fitch Ratings.

Fitch’s March Global Economic Outlook projects China’s economic growth in 2024 at 4.5%, a marginal downward revision from December.

The entity has cut its forecasts for China’s housing market, and now expects a 5%-10% fall in new home sales in 2024, amid the persistent slump in new housing demand.

Moreover, a decline in infrastructure spending in 12 regions is expected with a relatively higher debt-servicing burden to add to economic growth risks stemming from persistent difficulties in the property sector and broader deflationary pressure.

However, investments are likely to accelerate in some economically stronger regions, which, along with additional potential special-government bond issues and central government transfers, could mitigate some downside risks to economic growth.

Growth in onshore aggregate financing decelerated further in February, highlighting sluggish borrowing demand.

Fitch believes many issuers in the offshore market continue to rely on bank and onshore borrowings to refinance maturing bonds, and overall net financing in the offshore market remains negative.

In March 2024, positive rating actions outweighed the negative in Fitch’s China portfolio, mostly reflecting two upgrades in our corporates portfolio that were driven by revised assessments under our updated Government-Related Entities Criteria and an upgrade in the insurance portfolio.

These positive rating actions reflect higher support assessments or stronger strategic importance to the parent rather than an improvement in standalone credit profiles.

March also saw the downgrade of China Vanke Co., Ltd.'s rating to 'BB+’ and its placement on Rating Watch Negative, from ‘BBB’, which underlines the continued slump in the property market and its spread into some state-backed developers.

Copyright Mettis Link News