Transcript China`s Economy in the Post

China’s Economy in the Post-Crisis World
Carnegie Endowment, Washington, D.C.
Tom Byrne, Senior Vice President, Asia-Middle East Regional Credit Officer, Moody’s Investors Service
Tom Byrne, SVP – Regional Credit Officer for Asia and Middle-East
MARCH 17, 2010
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China’s Rating Story: A “Growth and Stability Pact”
China: Inflation, Real GDP Growth and Moody's Ratings
Real GDP %change
CPI Inflation
Rating Change
30
25
A1
20
A2 POS
A2
15
10
A3
A3
0
A3 POS
A3
5
A3 NEG
Baa1
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
-5
19
88
% change inflation, GDP
A1 POS
CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010
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Positive Outlook on China’s Sovereign Credit Rating
(rating action taken in November 2009)
» Very low vulnerability to external credit market and financial shocks
» High household and corporate savings aid financial and macroeconomic stability
» Low, affordable government debt with ample fiscal headroom for domestic shocks
» Contingent financial sector liabilities manageable and non-disruptive
» Pragmatic and cautious policies have reduced systemic risks
What would change the rating up:
“Maintenance of robust government finances and macroeconomic stability would put
upward pressure on the rating. Continued institutional strengthening would improve
credit fundamentals over the long-term.”
CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010
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Adequately high degree of government debt affordability
ChineseGovernment
Gov Generic10-year
10 yearBond
Bond
Chinese
Yield
5
4.5
4
3.5
3
2.5
2
1.5
1
8
9
8
09
10
08
09
08
09
08
09
10
08
09
-0
-0
-0
r
r
r
r
y
y
y
y
y
h
h
h
ay
ay
be
be
ul
ul
ar
ar
ar
be
be
rc
rc
rc
J
J
u
u
u
M
M
a
a
a
m
m
m
m
n
M
M
M
an
an
te
te
ve
ve
Ja
J
J
p
p
o
o
e
e
N
N
S
S
CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010
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Financial Sector Risks: Manageable and Non-disruptive
» Banking Sector Industry Outlook changed to stable from negative in January 2010
– Along with 11 other Asian systems, while four remain negative
» Entering 2009, the banks had high capital levels, low NPLs and were well provisioned
– Last year’s credit surge will require some capital strengthening, needs vary by bank
» No destabilizing deterioration in loan quality despite anticipated rise in NPLs in 2011
» ICBC, CCB and BOC Bank Financial Strength ratings on review for possible upgrade
– If positively concluded, these banks’ BFSRs would rise close the global average
» Stress Test: Banks now need more regulatory capital; capital could be depleted under a
severe stress test scenario which plays out over a multi-year timeframe.
CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010
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What Could Go Wrong Over The Outlook Horizon
A range of concerns, but fears of a boom-bust collapse are exaggerated in the next one to
two years.
Our primary concern:
“….whether the economic stimulus program may lead to the
build-up of a significant level of contingent fiscal liabilities….
emerging from provincial- and local government-level finances,
and whose off-budget interventions are not well understood and
need closer scrutiny.” (November 9, 2009 Press Release)
Other concerns:
•Ability to maintain low inflationary expectations
•Threat to export growth from trade frictions with the US and EU
•Advancing further institutional development
CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010
[email protected]
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CHINA’S ECONOMY IN THE POST-CRISIS WORLD
MARCH, 2010