China's key sectors poised for stability with govt's supportive policy measures

January 03, 2024 (MLN): Most rated sectors in China will face largely steady operational and business conditions, underpinned by the government’s supportive policy measures, and China’s demand growth will remain solid compared with that of most large global economies, says Fitch Ratings.

On the other hand, a number of sectors still face challenges from slowing growth and the government’s evolving policy response.

Meanwhile, Taiwan should benefit from a recovery in the semiconductor sector, after a severe sector downturn in 2023.

The scale, composition, and effectiveness of policy support in mainland China – including the pace of migration of local government financing vehicle (LGFV) debt onto the government’s balance sheet – and the degree to which they affect fiscal metrics and system leverage will be among the key areas to watch.

Fitch expects the efficacy and mix of policy support to be instrumental in curbing downside risks to economic growth, which we forecast to slow to 4.6% in 2024 after a temporary boost from the reopening in 2023.

“Slower growth than we expect could have ripple effects for the performance of various sectors, both in China and beyond,” it added.

Contagion from risk resolutions at high-risk financial institutions and faster-than-expected non-performing loan recognitions at banks could weigh on financial institutions’ credit profiles.

However, the entity further expects the government’s greater focus on preventing systemic risks to help contain the risks.

Meanwhile, LGFVs will get temporary relief from increased government efforts to resolve debt repayment problems in a more timely manner, although risks in the sector remain prominent.

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