China will be able to avoid a hard landing in the years to come, said a report of Fitch Ratings released in Singapore Wednesday.
China has the financial and administrative resources to avoid a hard landing in the near term despite the economy’s structural vulnerabilities, said the credit rating agency, Xinhua reported.
While the rising leverage can cause systemic vulnerability, the characteristics of China’s financial system and broader economy militate against a disruptive outcome, it said.
“China’s financial system is dominated by banks and funded overwhelmingly by retail deposits. Both the banks and borrowers are either state-owned or heavily state-influenced. These factors combine to suggest that the kind of collapse of confidence among creditors that might precipitate a financial crisis is unlikely in China,” it said.
“We expect the economy to grow between 6% and 6.5% in 2016 and 2017. We also think China has the will and the means not to devalue the yuan substantially against its new basket—we expect the yuan to weaken by only around 5% against the US dollar over 2016,” said the agency.
Fitch said it broadly agrees with the Chinese government’s assessment that the macroeconomic fundamentals do not necessarily point to a substantial depreciation of the yuan.
“China runs a large and rising current account surplus, which we expect to exceed $300 billion in 2016. The country as a whole is a substantial net external creditor, and the foreign reserves buffer remains strong at $3.2 trillion,” the agency explained.
The Chinese economy is showing signs of warming as observers eagerly await the release of first-quarter GDP data next week.
With fiscal and credit policy support beginning to take effect, the official purchasing managers’ index for the manufacturing sector came in at 50.2 in March, up from February’s 49 to its highest level since August.
