Policy support, more fiscal stimulus 'credit negative' for China: Moody's

Terming China's Gross Domestic Product (GDP) growth rate at 6.9% in 2015 as 'relatively robust', Moody's on Wednesday said continued policy support and fiscal stimulus to keep the growth rate high will be 'credit negative' for the country.

India has recently overtaken China in terms of growth rate, but unlike China, it does not depend on fiscal stimulus to boost growth. IMF has projected India to grow at 7.3% in 2015-16.

In its report on China, Moody's Investors Service said policy support by Chinese authorities in the "pursuit of growth targets is likely to persist in 2016, postponing deleveraging and the eradication of excess capacity. Such a delay would be credit negative".

The slowdown in the Chinese economy has hit the global equity and currency markets, including that of India.

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Moody's expects China to maintain its focus on growth and prevent significant slowdown by applying for substantial policy support.

The International Monetary Fund (IMF), in its World Economic Outlook, had projected China's growth to slow to 6.3% in 2016 and further to 6% in 2017. It has projected India to grow at 7.5% in 2016-17 and 2017-18.

"Further policy support would be credit negative to the extent that it delays deleveraging in the economy as a whole and among state-owned enterprises in particular," Moody's added.

Moody's projected China's fiscal deficit to be around 2.5-3% of GDP in 2016 after a 2.7% in 2015 and below 2% in the previous five years.

"We forecast government debt to rise slightly above 40% of GDP in 2016, still in line with similarly rated peers," it added.