China's economic slowdown may adversely impact rising markets: Moody's

“A prolonged slowdown in China will reverberate to other emerging markets beyond Asia-Pacific through a variety of transmission channels. In particular, economies with significant trade exposure to China’s commodity demand would bear the brunt,” said Deborah Tan, a Moody’s assistant vice president and analyst, in a press release.

Emerging markets have pockets of vulnerability owing to large borrowings from Chinese lenders and weak repayment capacity post the pandemic. China has largely remained committed to its Belt and Road Initiative investments in Latin America and Sub-Saharan Africa, but some economies face an array of risks related to these exposures. For example, Angola (B3 positive), Congo (Caa2 stable), and Zambia (Ca stable) are among the most heavily indebted to China, based on 2019 estimates.

“If a slowdown in China were to sustain, Chinese financiers’ lending capacity would be more constrained and selective, raising refinancing risks for heavily indebted borrowers. A reduction in lending support from China would delay progress in growth-enhancing infrastructure and heighten social risks in the medium term,” added Tan.

Should a growth slowdown persist in China, capital flow reversals and currency depreciation pressures would occur on a global scale. The effects would weigh more on economies with stronger linkages with China, weaker debt affordability, and high exposure to foreign financing, rendering them more susceptible to changes in global financial conditions.

ALCHEMPro News Desk (NB)