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China’s support measures to prop up growth, jobs; credit implications vary

In its latest report published on Tuesday, Moody’s Investors Service assesses the impact of coronavirus support measures on various facets of the Chinese economy.

Key findings

“China’s (A1 stable) increased fiscal spending and targeted monetary easing will help facilitate a moderate economic recovery in the second half of 2020.

Although direct fiscal support measures, which at 1.2% of GDP are relatively modest compared to those of other countries, the Chinese government has a number of other ways to support the economy, for example through state-owned entities. As a result, the full extent of support is likely to be significantly higher than direct fiscal support alone would suggest.

More measures are likely to be rolled out if economic recovery remains tepid. However, aggressive and massive plans to achieve a predetermined growth rate, like what we saw after the global financial crisis, are less likely.

At the local level, weaker revenues and higher spending are adding pressure to regional and local governments’ fiscal profiles.

The measures will have a mixed impact on the structured finance market, with consumer-back deals benefiting from measures supporting jobs and household income. But loan forbearance and moratorium provisions will have negative effects on the performance of these securities in the short term.”

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