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Moody’s is out with the latest report on China, assessing what factors are likely to constrain the Chinese economic growth prospects.

Key Highlights:

The property sector remains central to China’s economy, tighter credit supply constrains growth.

Property market remains as central to China’s economy as it did a year ago.

Largely through its impact on downstream industries in the supply chain (eg. cement and steel production).

In March 2017, we identified four channels — the supply chain, financial sector, household sector and government finance — that drive the potential impact of the property market on China’s macro economy,” says Michael Taylor, a Moody’s Managing Director and Chief Credit Officer for Asia Pacific.” Of the four, the supply chain remains the most important transmission channel to the wider economy, with 25%-30% of China’s GDP connected to demand from the property and construction sectors.”  

“The exposure of the financial system has also increased over the past year, largely due to the rise in mortgage loans issued by the formal banking sector and the increasing role played by shadow banking in providing credit to the property sector,” says Lillian Li, a Moody’s Vice President and Senior Analyst.” However, tighter regulations for shadow banking are likely to restrict the supply of credit to these borrowers, leading to some refinancing risk.”