Moody’s Investors Service says that market participants throughout Asia view sizeable contingent liabilities, stemming largely from the state-owned enterprise (SOE) sector, as the main source of risk facing the Chinese authorities.
At the same time, market participants appear split over whether or not China will face a financial crisis over the coming years.
Moody’s also acknowledges that the high debt load of Chinese entities connected with the government raises contingent liability risk for the sovereign, further noting that the liabilities of China’s SOEs are significantly higher than for those any other rated sovereign.
At the same time, Moody’s says an imminent financial crisis in China is unlikely, although this will come at the expense of credit quality.
Moody’s conclusions were contained in a just-released report on the results of polls it had taken of market participants from late May through to mid-June in Beijing, Shanghai, Hong Kong and Singapore. All those polled were attendees of “Moody’s Mid-Year China Conference: Understanding the Risks of High and Rising Leverage.”
The sustainability of a rising debt burden is arguably the key credit issue for China, particularly as it undergoes a structural shift towards services-orientated and consumption-led growth, the report says.