Ratings agency cuts China growth forecast on property woes
23 October, 2021
Ratings agency Fitch on Thursday (Oct 21) cut its growth forecast for China's economy this year citing a slowdown in the country's colossal property sector, which is also facing headwinds over faltering real estate giant Evergrande.
China enjoyed a swift economic rebound from the COVID-19 pandemic, but strict new rules on the country's developers have caused a deleveraging rush and helped push housing giant Evergrande to crisis point.
Financial markets have tumbled over fears that the Chinese group could collapse, leading to possible contagion in the world's second-biggest economy and beyond.
Fitch Ratings said it expected growth to come in at 8.1 per cent this year, compared with a previous 8.4 per cent estimate, saying the "main factor weighing on the outlook is the slowdown in the property sector".
Weakness in the property market comes after a recent bout of regulatory tightening by authorities looking to rein in surging prices and companies' excessive borrowing.
Beijing has cracked down on developers in a bid to force them to offload debt, introducing its "three red lines" to curb leverage last year.
"Housing starts are falling and financial pressures are weighing on real-estate investment," Fitch said in its latest report.
"Residential investment directly accounts for around 10 per cent of GDP and property activity has large spill-overs to other industries," it added.
The property slowdown is also expected to hit emerging markets, taking a toll on global commodity demand.
On Wednesday, Chinese premier Li Keqiang called for efforts to keep the economy running steadily, state media reported.
A State Council meeting he chaired underlined measures to promote consumption, stabilise commodity prices and maintain growth of foreign investment and trade.
Anxious investors were keeping tabs on whether Evergrande makes a payment on an offshore bond due Thursday.
Global markets were roiled earlier this week by worries that the firm did not have enough cash to even service its debts, raising warnings it would default and lead to a possible collapse.
However, hopes that it could avert a disorderly debt resolution were boosted Wednesday when it announced it had reached a deal to repay interest on a separate, domestic bond that was also due Thursday.
Still, even it it does not stump up the cash to overseas bondholders, it has a 30-day grace period to find it.
Source: www.channelnewsasia.com
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