ID :
402962
Thu, 04/07/2016 - 05:31
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China's Hard Landing Unlikely, But Scepticism Over Reform Intensifying - Fitch

BEIJING, April 7 (Bernama) -- Fitch Ratings has affirmed that China has the financial and administrative resources to avoid a hard landing to grow close to zero in the near term despite its economic structural vulnerabilities. The rating agency expects China's economy to grow between six per cent and 6.5 per cent this year and next year. However, high and rising leverage in the economy is a mounting source of systemic vulnerability, it said in a report entitled 'What Investors Want to Know: China', released Wednesday. However, Fitch believes the characteristics of China's financial system and broader economy militate against a disruptive outcome. "China's financial system is dominated by banks and funded overwhelmingly by retail deposits. Both the banks and borrowers are either state-owned or heavily state-influenced. "These factors combine to suggest that the kind of collapse of confidence among creditors that might precipitate a financial crisis is unlikely in China," it said. Fitch said a broad range of higher frequency data pointed to a weakness early this year, with both manufacturing and non-manufacturing PMIs (Purchasing Managers Index) weakened in February, as did industrial production, retail sales and exports. However, the Chinese New Year holiday can distort the picture. Fitch said monetary policy eased significantly last year, which has reduced the cost of funding across the economy. "About 4.2 trillion yuan in new credit hit the economy in January and February this year combined, up 23 per cent from the first two months of last year. "The exchange rate is no longer appreciating sharply in real effective terms, which should support exports. We expect fiscal policy will be stimulatory in 2016 as well," it said. --BERNAMA

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