S&P tips China growth this year at just 1.2%
HONG KONG -- The COVID-19 outbreak should slow China's economic growth to just 1.2% this year, prompting a rapid expansion in credit, says ratings agency Standard and Poor's.
"This will escalate China's debt-to-GDP ratio, which we estimate will rise 24% to 273% in 2020," S&P says, pointing out that while GDP slowdowns typically lead to credit expansion in China, S&P believes this crisis may be different in terms of how aggressively China may restore debt discipline.
S&P Global Ratings credit analyst, Terry Chan, says in a report released today:
"Our conversations with Chinese Government officials have told us that Beijing viewed its decision to turn on the credit tap during the 2008-2009 global financial crisis as a mistake it does not want to repeat."
Bank lending to companies and households increased by RMB 23.6 trillion (about US$3.4 trillion) between 2008 and 2010, growing by more than 82% in those three years. "This resulted in a lot of investment in infrastructure, not all of which has been well used," S&P says.
"China has not given up on using credit to support growth during difficult times, however. As the economy slowed in 2012 and 2014-2015, policy easing resulted in a material increase in the net flow of credit.
"The pick-up in credit in recent months is comparable to these recent episodes. Moreover, efforts to tighten policies and stem the flow of credit once economic activity stabilised has not always been smooth."
S&P Global Ratings credit analyst, Kim Eng Tan, says: "The scale and longevity of credit expansion during the COVID-19 outbreak will give us insights into China's willingness to use debt to stimulate the economy.
"If China is more cautious than it has been in the past on using debt when it is facing its lowest GDP growth since Mao -- with a trade war ongoing and the global economy teetering into recession -- we might believe Beijing is succeeding in reducing its long dependence on debt.
"This might signal more tolerance for a more moderate pace of growth and greater reliance on productivity as the underlying driver of the economy."