Slowing economy poses challenge to new China leaders – Moody’s

21 November 2012 06:42  [Source: ICIS news]

SINGAPORE (ICIS)--China’s incoming leaders face the challenge of running a slowing economy amid weak external demand, compounded by constraints in policy actions they can take to address the problem, Moody’s Investor Service said on Wednesday.

The Communist Party of China (CPC) has announced on 15 November its new  leaders, with Xi Jinping as head, who will lead the government of the world’s second biggest economy over the next decade.

They take up the reins in March next year.

“The economic and political challenges that the new leaders face are different and also harder to manage than those which confronted their predecessors 10 years ago,” the ratings agency said in a statement.

“For the first time since China embarked on fundamental reforms to open its economy in the late 1970s, its leaders will likely face an era of single-digit growth against the backdrop of weak external demand, a maturing domestic economy, and changing demographics,” it said.

The Chinese economy is projected to grow at 7.5% this year – the rate of expansion decelerating from a 9.2% pace in 2011 - and with not much recovery expected in the next two years.

Moody’s, however, said that the Chinese economy is not in for a hard landing.

The country has credit profile of “Aa3 Positive” for Moody’s

The ratings firm listed six key credit challenges for China, namely, slowing growth; more constraint in policy options; rebalancing the economy to reduce reliance on fixed-capital formation and exports; furthering market reform and fostering of competition; financial-sector liberalization, and; maintaining social stability.

“The new leadership does not have the wide latitude that the previous leadership had as recently as four years ago for stimulating the economy, should growth slow more than expected,” Moody’s said.

Any move to address a further weakening of the economy will have to be carefully weighed against inflation threats.

“The authorities' vigilance against the threat of price pressures …. along with the destabilizing social pressures that accompany elevated prices for goods and inflation of asset prices - constrains the freedom of policymakers to use expansionary fiscal and monetary policy to act against slowing growth,” Moody’s said.

China’s economic growth was 7.4% in the third quarter – the slowest recorded in more than three years – steadily weakening amid slumping external demand.

Like most Asian economies, China counts exports as a major pillar of economic growth.


By: Pearl Bantillo
+65 6780 4359



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