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Fitch Ratings: China may Avoid "Hard-Landing" but Rebalancing Postponed

07-20 18:05 Caijing
"This is likely to avoid a 'hard landing' in the short term, but only at the cost postponing resolution of the economy's structural imbalance towards investment," Fitch Rating said.

China's investment-led strategy in the second half of this year, backed by monetary easing, could make a "soft-landing" likely, but the much-needed rebalancing of its economy could be delayed, Fitch Ratings said in a recent report.

"This is likely to avoid a 'hard landing' in the short term, but only at the cost postponing resolution of the economy's structural imbalance towards investment," the rating agency said.

It also warned that "structural issues will continue to weigh on China's Long-Term Foreign Currency IDR of 'A+' with a Stable Outlook and Local Currency IDR of 'AA-' with a Negative Outlook."

Fixed-asset investment growth picked up to 20.4 percent year-on-year in the six months to end-June, from 20.1 percent year-on-year in the five months to May, government data released last week showed.

The acceleration in fixed-asset investment was associated with higher investment in infrastructure-related items such as power and water utilities and metals, Fitch noted.

"It is unwise to read too much into one month out-turns, but this does track with anecdotal evidence including a statement by Premier Wen Jiabao on 10 July that 'currently the main task is to promote reasonable investment growth.'"

Renewed reliance on investment as a growth driver would mean that the structural imbalance of China's economy towards investment may take longer to be corrected than Fitch had previously expected, it added.

The agency maintained its 8 percent projection for Chinese growth in 2012, and cut its global growth forecast to 3.3 percent in June from 3.5 percent in March.

 

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