Moody’s downgrade China over debt
China’s corporate debt is “the biggest threat” to the global economy, warned an economist at Moody’s Analytics, who called such risks “a very significant fracture line.”.
This follows similar comments from Fitch Ratings last week, which said that private companies in China defaulted on their debts at a record pace this year..
While corporate debt is «a fault line in the financial system and the economy as a whole», chief economist at Moody&# 39; s Mark Zandi noted that heavily indebted companies are the most risky.
«I would say China’s corporate debt is the biggest threat», – he said, adding that it is growing very rapidly in China.
Zandi explained that many companies are struggling to cope with the slowdown in growth caused by the trade war and other factors..
«In the United States, the picture is similar – not to the same extent – but we are seeing a very significant increase in so-called lending, lending to heavily indebted companies. They will be hit if the economy slows down», – said Zandi.
Debt is a problem in the world’s second largest economy, which is trying to reduce its dependence on debt by tightening regulations to accelerate debt reduction – or the process of debt reduction.
However, the trade war is hampering efforts to reduce huge levels of debt as China seeks ways to accelerate the slowdown in the economy, which has been hit by U.S. trade tariffs on Chinese exports..
The country has suspended its debt-cutting efforts this year and introduced more stimulus to the economy..
Fitch Ratings reported last week that a record 4.9% of private Chinese issuers defaulted on RMB bond payments for the 11M 2019, up from 0.6% in 2014..
In an October report, the ratings agency attributed this to tighter lending as a result of government efforts to reduce leverage..
According to him, local authorities also showed «great tolerance» to defaults.
«About 80% of onshore defaults, both in terms of the number of issuers and principal, were attributed to the private sector, as they are more vulnerable to external finance market volatility than SOEs – and therefore face greater liquidity and / or refinancing risk in an environment tough lending conditions», – said in the message.