Energy, shipping and steel would be the hardest-hit sectors in Asia-Pacific (APAC) in the event of a sharp slowdown in Chinese growth, Fitch Ratings said, adding the outlooks for these in the region were negative even under its current forecast expectations where China slows only gradually.
Asian manufacturing and technology sectors would also be significantly affected, given the scale of Chinese demand and its position in the regional supply chain, Fitch said in a statement.
The statement said Fitch’s core view remains that China will not experience a ‘hard landing’, with GDP growth forecast to slow to 6.3% and 6% in 2016 and 2017, respectively. “But some risks remain of a disorderly structural rebalancing, where growth slows more quickly than forecast. Fitch has assessed the impact of a hypothetical scenario in which China’s economy were to experience a rapid and substantial deceleration over a three-year period to end-2018, with shocks to both investment and consumption. Under this scenario, Chinese GDP growth would fall to an average of 2.3% per annum from 2016-2018,” it said.
A sudden slowdown in China would act as a significant drag on global growth, the statement said, adding APAC countries with the most extensive trade and investment connections with China would be the most exposed, and include Hong Kong, Singapore, Korea, Taiwan and Japan. “Global commodity prices would stay lower for longer, and capital investment and export and trade-linked sectors would face the most significant effects on financial performance and credit profiles.”
APAC manufacturers of heavy equipment and machinery, and dry-bulk shipping companies, would suffer as Chinese demand and investment growth – and by extension, regional trade – would fall rapidly. Chemicals, ores and minerals are also among the largest categories of exports to China from the APAC region. Consumer product manufacturers such as office and telecom equipment supplies would also be exposed, the statement said.