INSUBCONTINENT EXCLUSIVE:
BEIJING:China's economic restructuring is picking up pace, with its manufacturing sector showing signs of a shift to higher value-added
areas - a credit positive, analysts at Moody's Investors Service said on Tuesday.
China has been cutting excess capacity in heavy industry
in recent years to revive profitability in the sector and reduce high debt levels, while encouraging factories to shift to higher-value
production such as robotics and aerospace under its Made in China 2025 initiative.
"If such measures lead to a reallocation of labour and
capital resources that shift credit towards sectors with higher productivity growth, it will support the Chinese government's credit
quality by increasing its debt-carrying ability," Marie Diron, managing director of Moody's Sovereign Risk Group, said at a conference in
Beijing.
But Diron cautioned that liabilities of state-owned enterprises continue to outpace economic growth, even as authorities have been
making some progress in reducing risks in the financial system.
China and the rest of Asia also continue to face external risks such as
punitive United States trade measures, as China remains reliant on technology supplies from the United States and other advanced economies
in the short term, according to a presentation by Moody's at the conference.
But in the longer term, China will stay focused on developing
high-tech sectors, with or without United States supplies, as they are key to its growth plan, said Lillian Li, vice president at Moody's
Credit Standards and Research Group.
"China has the financial and policy levers to pursue this plan, and sustained higher public-sector
spending would not materially alter its fiscal strength and sovereign credit profile," Li said at the conference.
The United States and
China have threatened tit-for-tat tariffs on goods worth up to $150 billion each, as President Donald Trump pushes Beijing to open its
economy further and address the United States' large trade deficit with China.
Moody's also expects more credit defaults in China as
tightening funding conditions make it harder for some companies to refinance their debt.
Companies with weak balance sheets and those
relying on short-term debt for refinancing are particularly vulnerable, said Ivan Chung, associate managing director with Moody's
Corporate Finance Group.
At the same time, risk aversion is rising as banks and investors are now more concerned about the fundamentals and
liquidity of issuers.
Moody's also said China's banking system has entered a period of slower growth, in response to Beijing's push to
reduce regulatory arbitrage, opaque investments and other shadow banking activities
