This year, the global economy expanded amid the stock indices’ rally. That was mainly on the back of stability in China in the run-up to the 19th Chinese Communist Party National Congress, which took place in October. Now the Chinese government is cracking down on the growing debt, thus causing concerns over a more-than-expected slowdown in the country’s economic growth.
“We are concerned that China could be vulnerable to US tax reform getting done,” David Woo, head of global rates, FX and EM FI strategy & economic research at Bank of America, said. He noted that an increase in US rates and the US dollar would likely cause capital flight from China to accelerate and weaken the Chinese yuan. If that happens, China’s central bank would be likely “to tighten liquidity, which in turn would raise further concerns about the growth outlook,” Woo said.
S&P Global Ratings downgraded China's long-term sovereign credit rating in September, citing risks associated with the country’s growing debt.
Earlier in May 2017, Moody's Investors Service lowered China's long-term local currency and foreign currency issuer ratings to A1 from Aa3. The downgrade reflected Moody's expectation that China's economy-wide debt would continue to grow amid slowing potential growth.
Beijing is focused on the policy of reducing the country's dependence on debt. Last week, following the results of the annual Central Economic Work Conference, the country’s authorities said they were on their way to combat financial risks, environmental pollution and poverty.
Meanwhile, many experts quite positively assess growth prospects for China. The Chinese GDP growth is expected to rise by more than 6% in 2018.
