Structural challenges to dampen China's growth in 3-7 years: Moody's

With prior growth engines like urbanisation, capital investment and exports having peaked, China's pivot to high-tech development and increasing domestic consumption, alongside ongoing reforms to improve productivity, could counter these hurdles.

If well-executed, this shift could result in an average annual growth rate of approximately 4.2 per cent from 2023 to 2030, which forms Moody’s baseline for the medium term.

In a downside scenario where China returns to traditional growth drivers to boost the economy, the average annual growth rate during 2023-2030 could drop to 3.5 per cent.

The rating agency expects a steady drop in potential growth in its baseline despite better productivity, economic rebalancing. It assumes the government's focus on high-tech development and raising domestic consumption will lead to an increased role for the services sector and a modest improvement in productivity growth.

Growth in infrastructure activity will be lower than the past with lower construction demand amid slowing urbanisation. State-owned enterprises will remain at the core of the economy with ongoing reforms to improve productivity, Moody’s said in a report.

China could revert to traditional growth drivers if goals to rebalance economy and boost productivity are not met, it noted.

Credit quality of rated issuers will be eroded in downside scenario, but some sectors will outperform.

ALCHEMPro News Desk (DS)