Policy easing seen cushioning Greater China slowdown in 2022 – report

Sovereign credit profiles across greater China are expected to remain stable in 2022, as the region’s strong financial buffers offset rising growth pressures associated with pandemic-related uncertainty and mainland China’s property-sector stress, Fitch Ratings said in a report.

The ratings on China, Hong Kong, Macao and Taiwan are all on Stable Outlook, it added.

Fitch forecasts mainland China growth to slow to 4.8%, from 8.0% in 2021. The economy will face headwinds in 1H22, due to further declines in property sales and construction, sporadic mobility disruptions tied to the pursuit of “zero-Covid”, and a less favourable base effect.

“We expect industrial and export-sector resilience to provide stability to the labour market, even as the normalisation of exports contributes a smaller share to overall growth. We believe macro policy easing will continue to advance next year, leading to improved growth prospects in 2H22,” Fitch said.

Geopolitical tensions between China and the US are likely to persist and weigh on sentiment. However, Fitch said it expects the two sides to restore more frequent communication channels in an effort to reduce hostilities. Meanwhile, China’s “common prosperity” agenda will increasingly influence policy outcomes leading up to the 20th Party Congress in late-2022 and beyond, underscoring the prioritisation of broader socioeconomic development targets.

“Outside of the mainland, we expect growth in Hong Kong, Macao and Taiwan to slow modestly, following relatively strong rebounds in 2021. The retail and leisure sectors of Hong Kong and Macao are likely to benefit from the launch of a quarantine-free travel corridor with mainland China, even if these arrangements suffer from temporary disruptions due evolving pandemic conditions. Meanwhile, Taiwan’s high-tech manufacturing industry and broader economy are likely to continue to benefit from ongoing global semiconductor supply shortages and order backlogs,” the report added.

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