Fitch: China property stress adds to macro policy trade-off risks

Early Thursday morning, global rating agency Fitch came out with an update on the risks emanating from China’s property market stress.

“China’s attempts to preserve strengthened risk controls over the property sector without magnifying a growth slowdown illustrate the difficult trade-offs its policymakers are facing,” said Fitch.

The rating agency adds, “Stress could spread to other parts of the economy and the financial system if policy easing is too cautious. However, a substantial loosening of credit conditions could raise system leverage and set back efforts to control financial risks.”

Key quotes

Contagion has surfaced across parts of China’s homebuilding sector, triggered by the distress of Evergrande and aggravated by subsequent credit events involving other developers.

We believe our current growth forecasts of 8.1% in 2021 and 5.2% in 2022 remain broadly intact given our expectations of the policy response outlined above.

FX implications

Following the news, AUD/USD reverses the early Asian session gains while declining towards 0.7500, down 0.15% on a day.

Also read: REDD: China Evergrande secures extension on defaulted $260 million bond