Moody's Investors Service said Wednesday that China's economic slowdown will pressure the profitability of the country's non-financial corporations into 2016, making debt deleveraging unlikely over the next 12 to 18 months, although continued monetary easing will provide some liquidity support.
"As China's economy continues to rebalance, the credit quality of various sectors is starting to diverge," said Clement Wong, a Moody's associate managing director.
Moody's Investors Service is the bond credit rating business of US credit ratings and research provider Moody's Corp.
Wong noted that companies in the oil and gas, metals and mining sectors and commodity trading sectors remain pressured by weak commodity prices and oversupply.
"But policy relaxation, lower input costs and rising consumption are buffering the negative impact from China's slowing economy on companies in the auto, retail, property, construction and telecom-media-technology sectors," he said.
The slowdown in China's economy, with GDP growth forecast at 6.3 percent in 2016, down from an estimated 6.8 percent for 2015, has led to an increase in downgrades and negative outlooks in particular in the high-yield category, suggesting another tough year ahead for these companies, according to the rating agency.
While credit trends for investment-grade companies are also deteriorating, Moody's noted that those in the private sector benefit from stronger market positions and solid balance sheet liquidity, according to its website.
In addition, rated State-owned enterprises benefit from their better access to domestic liquidity and strong levels of government support, the agency noted.
