Friday, March 29, 2024

China’s debt crackdown to hurt emerging markets, oil, metals, Zambia and Mongolia most vulnerable

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Reuters reports that China’s debt crackdown is a key risk to the country’s economic growth and will have significant knock-on effects for the global economy, particularly emerging markets with high commodity dependence or close Chinese trade links, Fitch Ratings said.

Beijing’s campaign to put a lid on debt could also lead to a sharp slowdown in business investment, Fitch said late on Sunday, forecasting that growth in the world’s second-biggest economy would slow to around 4.5 percent over the medium term.

Fitch said the implications of this scenario for the global economy would be significant but not dramatic, unlike a full-scale hard landing.

One of the most significant effects would be on commodity prices, with Fitch expecting oil and metal prices to fall 5 to 10 percent from its baseline scenario, reflecting China’s large role as a commodity consumer.

In April, a Reuters poll of 72 institutions showed economists expected China’s economic growth to slow to 6.5 percent this year and 6.3 percent next year as Beijing extends its crackdown on riskier lending practices.

Gross domestic product in 2017 expanded 6.9 percent in real terms and 11.2 percent in nominal terms.

Beijing’s financial crackdown, now in its third year, has slowly pushed up borrowing costs and is choking off alternative, murkier funding sources for companies such as shadow banking.

The ratio of Chinese corporate debt to GDP is already very high by international standards – at 168 percent in 2017 – and is expected to start rising again as nominal GDP growth declines towards 8 percent from the unusually high rate of more than 11 percent in 2017, Fitch said.

If the government aims to stabilise its corporate debt ratio by 2022, Fitch said China’s nominal economic growth rate could fall by 1 percentage point a year over the medium term while business investment growth would drop 5 percentage points per year.

Net global commodity exporters would be affected through a decline in direct exports to China and weaker terms of trade, Fitch said.

The rating agency’s model suggests a particularly strong impact on Chile while direct exposure is lower in Latin America’s other major economies that are generally less dependent on Chinese demand.

Exporters of energy products and metals, such as Zambia, could also be hurt as China’s role as a source of financing sub-Saharan Africa has increased considerably in recent years.

Fitch singled out Mongolia as the most vulnerable of Asia’s net commodity exporters as China accounts for all of its coal and iron ore exports.

A bigger impact on the global economy would result if the Chinese currency were to depreciate significantly in the slower growth scenario, Fitch said.

“It is hard to put a precise time frame on when China will start to see the deleveraging of the real economy, but at some point it looks inevitable,” said Brian Coulton, chief economist at Fitch.

“The scenario analysis we have undertaken suggests that, when it does occur, it will be a process that will be a significant drag on growth.”

27 COMMENTS

    • This report is based on assumption.

      If China cuts down …. this will mean ….

      This are opinions of an individual that have no space on our headline news.

      At the end of the day, be it 4.5% cut on zambia’s Injection of funding, this will have no effect whatsoever on the rise and rise of zambia under the guidance of his majesty President Lungu.

      Step by step we fly,Lusaka times I thought we discussed this doesn’t become headline news ?

      Thanks

      BB2014,2016

    • Mushota is this the best you can produce from your PhD, just a few plagiarised statements, several broken grammar sentences and cilly spelling mistakes off course! I shudder to think what you would have brought to any class if you were working in Zambia! Chaos! Its a good thing you are working in Tesco’s to keep up with the bills! What’s happened today, you are on rampage…..

  1. The argony is ……After dragging us into a $17 billion debt trap only to find we are still at the mercy of commodity prices and the weather……..too bad for 98% of Zambians…..2 to 5% of the PF who have grown rich have not to worry…..

    • Oh give it up.

      Go to bed and start searching for a better job. You will become like jay jay that loves the sound of their own voice and talks nonsense after nonsense daily.

      This is step you can’t go beyond.

      You talking rubbish with those percentages

      Thanks

      BB2014,2016

    • Mushota you still haven’t treated that infested swamp between your legs I see……you are gibberish..

    • You told what ? SOB shut up

      Read the article before exposing your backside like that.

      Thanks

      BB2014,2016

    • So says a nobody with no proof whatsoever on anything

      Shut up you little maggot and respect our President

      Thanks

      BB2014,2016

    • And you proof of what? look who’s talking just a bunch of fakes lies and rubbish no wonder you are called BB bullsh!t blogger!

  2. One of the worst human race on earth is Chinese. They don’t mean well almost in everything. They are thieves. Does ka Mushota understand economic issues? What is your PhD about?

    • Be nice

      Phd on Business from University of Glasgow

      Go there and search my name

      Mushota Chimfwembe

      I finished my thesis last year. I would appreciate if you addressed me as Dr. and not Ka Mushota

      Respect is earned and I have earned it umpty times.

      Thanks

      BB2014,2016

    • I have always mantained that this ka mushota things is a fraud and fake creation just to stir up people’s emotions someone is just playing games and when you react you play along that game.
      Anyone with a real PhD can never stoop so low or as dull as ka mushota!

  3. What a hypothetical and alarmist statement! How have Zambia and Mongolia become significant players in the world economy? We know that African giants are Egypt, Kenya, South Africa and Nigeria, they’re the most affected by any turbulence in the global economy. Malawi, Mozambique, Tanzania, Zimbabwe are worse off than Zambia. Hichilema and Obasanjo are spending sleepless nights scheming against Zambia, take a break and rest. Try the ballot, not the balance sheet

    • If a household depends heavily on a supermarket for credit and selling their produce, if that supermarket goes through turbulence, this is also felt in that dependant household……mongolia like Zambia is a major copper producer and recipient of Chinese aid…

  4. Over dependence on borrowing is killing emerging economies in Africa. There has to be a cap on borrowing in the long run. Countries like Zambia are at the behest of Chinese machinations in as far as these toxic loans are concerned.We need to change our mindset and come to the realization that these loans are not free meals and will need to be repaid at some point. What is going to happen should China decide put strict parameters for borrowing? We must think outside the box and think of ways of raising capital locally. We have abundant resources that we should put to good use. As usual the PF are bunch of criminals and will turn a blind eye to all this.

  5. The priority is to diversify global and regional in exports of Zambian refined goods That song has always been sung but with little investments in local manufacturing sectors The greatest fall of Chinese economy may come just like its growth It’s a normal economic cycle and countries heavy on China must rebalance in between the years 2030 to 2050 or earlier their exposure You can simply look at the Chinese decline I its demographics impacting on job growth for that GDPs There is a move by younger Chinese workers across the regions leaving the aged and well educated to drive those growth in the economy The on ones appear more driven by different agendas of their…

  6. The young ones ,rather, appear more driven by different agendas of their own wit little investments in education and value skills You have a growing concern of social unrests and support The wage rates are very low in the midst of rising cost of living without any social benefits Its may be a different china from the Mao Era and the Deng reforms have not helped the young Chinese build on Mao’s There are growing sins of revolt that could repeat in the Tiananmen square

  7. with increased income and inequalities

    In all this Zambia must create its manufacturing base using its better resource endowment and demographic dividend than China so that just in case the Chinese or indeed any other economy inclined failed Zambia can still roll on That is why most better understood Chinese are investing diversifying into Zambia for long-term

    So Zambia is a greater winner if it well diversified should that happen and is bound to happen because of the structure of demographics in china and structure of the economy

  8. I don’t understand why some bloggers still believe this ‘Mushota’ exists in it’s form. It is actually more like a mythical creature that enjoys toying with peoples minds. It may even be a ‘pack of creatures’ responding in turn and at different times depending on the issue.

    I would advise people to best ignore most of the incorrigible rantings.

  9. Did Childish drag you into his corruptly acquired land in Namwala and his Paradise Farm in Panama? Then there is need for you to cry! Keep developing this thing GRZ, Childish will have nothing to point at as failure!

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