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Massive government stimulus to limit the risk of a sharp slowdown in China 

April 6, 2016


Stock and currency market turbulence has intensified concerns about a possible hard landing in China. It is true that the economy is slowing but there is limited risk of a sharp slowdown this year. Strong headwinds for the manufacturing and export sectors will slow the economy further this year but will not result in a collapse due to the massive government stimulus. China's real GDP growth has been on a downward trend ever since it peaked in Q2 2007 and is likely to decline further this year.

There are three main risks for the Chinese economy across the horizon: the credit risk, the housing bubble and another round of stock market turmoil. According to official figures, bad debt in Chinese banks climbed 51% in the past year to CNY1.27tn (USD195bn). This is the highest level since June-2006. Given the large state-owned banks’ corporate deposit holdings worth trillions of yuan, the debt is manageable. 

The slowdown in China worrying global investors is unlikely to result in a hard landing although high debt levels are a concern, said Fitch Ratings in a special report released on Wednesday. Fitch is still maintaining its stable outlook on China's credit rating for now, unlike peers Standard & Poor's and Moody's Investors Service who have lowered the outlook in recent weeks amid concerns over debt levels in the world's second-largest economy. Fitch expects China's economy to grow between 6 - 6.5 percent in 2016 and 2017. Read more

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