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Moody's Investors Service issued it's latest report on China saying the country's faster pace of change in the economy' structure is credit positive and derisking is progressing in some areas, with some advances in structural change; policy trade-offs are arising.

China Xi

China's Xi initiating structural change at a faster pace says Moody's

Moody's report, "Government of China: Change in China's economic structure is gathering pace, a credit positive"

Moody's report is timely as we head into the G-7 meeting in Canada at week's end with the U.S. and China locked in extensive trade negotiations that have caused much angst in the financial markets. The U.S. announced tariffs on the EU, Mexico and Canada at the end of last week on Aluminum and Steel after two months of negotiations failed to come to agreement. China said today that if their are similar tariffs on the Chinese than the trade negotiations are off.


  • Moody's: China shows derisking is progressing in some areas, with some advances in structural change; policy trade-offs are arising
  • Moody's: China shows faster pace of change in the economy' structure; credit positive

Moody's also changed it's  outlook on the China life insurance industry to stable from negative. Th report reports assess the pace and nature of change in economic activity across sectors, as potential first indications of the reallocation of resources and credit.

The report comes after Moody's last week issued the note; "Property -- China: Growth underpinned by households, constrained by regulations on credit supply".

Michael Taylor, Moody's Managing Director and Chief Credit Officer for Asia Pacific, said "In March 2017, we identified four channels -- the supply chain ,financial sector, household sector and government finance -- that drive the potential impact of the property market on China's macro economy. Of the four, the supply chain remains the most important transmission channel to the wider economy, with 25%-30% of China's GDP connected to demand from the property and construction sectors."

Just last week the Reserve Bank of Australia Governor said The ever growing Chinese debt is the greatest risk to Australia.

"The exposure of the financial system has also increased over the past year, largely due to the rise in mortgage loans issued by the formal banking sector and the increasing role played by shadow banking in providing credit to the property sector. However, tighter regulations for shadow banking are likely to restrict the supply of credit to these borrowers, leading to some refinancing risk," said Lillian Li, a Moody's Vice President and Senior Analyst.

Moody's said household leverage increased faster in 2017 than during 2013-16, leading to a deterioration in household liquidity. However, default risks remain low because of strong income growth and still-large deposits. Housing affordability has also strengthened slightly.

Source: Moody's

From a Sunburnt Country

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