Will Chinese Domestic Debt Mount Up After Downgrade?

The downgrade of China’s debt by Moody’s Investors Service may push Chinese companies to borrow even more money from domestic banks as overseas debt becomes more expensive, increasing risks for the nation’s finance industry.

With growing indebtedness at home, compounded by a slowing economy, there’s a risk of a “negative feedback loop,” said Khoon Goh, head of Asia research for Australia & New Zealand Banking Group who sees state-owned enterprises and property developers feeling the biggest impact. The downgrade will particularly hurt airlines and shipping companies, said Corrine Png, chief executive officer of Crucial Perspective in Singapore.

Mainland firms “will need to go back to the Chinese banks in order to get loans,” ANZ’s Goh said. “That means that Chinese banks will grow more exposed to the corporate sector.”

Bloomberg

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam