The US ratings agency, Moody’s Investors Service, is out with its latest report on the Chinese economy.
Moody's Investors Service says that an increase in China's (A1 stable) credit efficiency of growth is key to reducing leverage while meeting official growth targets and preventing a sharp increase in defaults.
Moody's points out that China's National Financial Work Conference — which sets the country's financial policy direction every five years, and which concluded on 15 July 2017 — has demonstrated a refreshed commitment to facilitate reforms to curb leverage among state-owned enterprises, companies as a whole, and the broader economy, to avoid the risk of a financial crisis.
Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific noted: "The Chinese authorities will balance the competing aims of short-term, credit-fueled growth — which they target at around 6.5% in 2017 — and long-term policy measures to increase the resilience of the financial system and to reduce and eventually reverse the growth of leverage in the economy.”
Moody's says that managing these policy trade-offs will mean sustainably reversing a trend in which progressively larger amounts of credit have been needed to generate any given amount of GDP growth that has been evident since the start of this decade.
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