Rating agency lowers China growth forecast on property issues – business & finance


BEIJING: Rating agency Fitch lowered its growth forecast for the Chinese economy this year on Thursday, citing a slowdown in the country’s colossal real estate sector, which is also facing headwinds in the face of the declining real estate giant Evergrande.

China saw a rapid economic rebound after the Covid-19 pandemic, but tough new rules on the country’s developers have caused a deleveraging rush and helped push housing giant Evergrande to the point of crisis.

Financial markets collapsed amid fears of the Chinese group’s collapse, leading to possible contagion in the world’s second-largest economy and beyond.

Fitch Ratings said it expects growth of 8.1% this year, down from a previous estimate of 8.4%, saying “the main factor weighing on the outlook is the slowdown in the real estate sector”.

Chinese Evergrande bonds drop sharply due to fears of default, onshore bonds temporarily suspended

The weakness in the housing market comes after a recent wave of tighter regulation by authorities seeking to curb soaring prices and excessive corporate borrowing.

Beijing cracked down on developers in an attempt to force them to offload their debt, introducing its “three red lines” to reduce leverage last year.

“Housing starts are down and financial pressures are weighing on real estate investment,” Fitch said in his latest report.

“Residential investment directly represents around 10% of GDP and real estate activity has significant spillover effects on other industries,” he added.

The real estate slowdown is also expected to hit emerging markets, which will weigh on global demand for commodities.

Chinese Premier Li Keqiang on Wednesday called for efforts to keep the economy running, state media reported.

A meeting of the State Council he chaired highlighted measures to promote consumption, stabilize commodity prices and maintain growth in foreign investment and trade.

Concerned investors were watching if Evergrande made a payment on an offshore bond due Thursday.

Global markets were troubled earlier this week by fears that the company would not have enough liquidity to even service its debts, prompting warnings it would default and lead to a possible collapse.

However, hopes that he could avoid a messy debt resolution were heightened on Wednesday when he announced he had reached a deal to repay interest on a separate national bond that was also due on Thursday.

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