On December 5, Beijing time, China Chengxin International announced that it would maintain China's sovereign credit rating of AA+G with a stable outlook.
CCXI believes that China's economy will still show strong resilience in 2023, China's fiscal space will still be sufficient, and the additional issuance of government bonds will also free up disposable fiscal space for local governments. At the same time, China**'s firm support for new drivers will support medium- to long-term economic growth, while abundant foreign exchange reserves and high coverage of short-term external debt will also provide good support for sovereign credit strength. In the future, it is still necessary to continue to pay attention to the process of controlling the new and resolving hidden debts, as well as the evolving geopolitical risks in the context of the great power game.
Against the backdrop of unstable global economic recovery and intensifying international geopolitical and economic conflicts, China's economic development will still show strong resilience in 2023 compared with major developed economies such as Europe, the United States, Japan and South Korea. At the same time, based on the expectation that real estate investment will continue to decline and narrow under the policy adjustment next year, industrial production will remain resilient, and there will be sufficient monetary and fiscal policy space, CCXI expects China's economic growth rate to reach about 5% in 2024. In terms of economic growth, China's GDP growth rate in the first three quarters of this year has improved significantly compared with last year, and is still significantly higher than that of major developed economies such as the United States, the European Union, Japan and South Korea. From the perspective of growth drivers, the contribution rate of the service industry and final consumption to China's economic growth has remained at a high level since the beginning of this year, and the growth momentum structure has generally returned to the normal level. From the perspective of both supply and demand, the bright spots in the fields of equipment manufacturing and production, service consumption and the export of the "new three" are prominent, and new growth momentum is still accumulating. In addition, under the efforts of the steady growth policy, infrastructure investment in the broad sense has maintained a relatively high growth, which has formed a strong support for economic recovery. Overall, although the pace of China's economic recovery has been twists and turns since the beginning of this year, the output gap has continued to narrow, the structural adjustment of growth momentum has been carried out in an orderly manner, and the economic recovery has shown a bottoming out and rebounding trend. In November this year, the IMF raised its forecast for China's economic growth this year and next year to 54% and 46%, up 04 percentage points.
CCXI expects China's economic growth to reach 53%, and the economic growth may still reach about 5% next year. The positive outlook for China's economic growth next year has multiple supports: first, the easing of drags. With the adjustment and support of real estate policies, the decline in real estate investment may narrow next year, and the drag on fixed asset investment and economic growth will be reduced. In view of the role of Chinese manufacturing in the global industrial chain, as well as the support of the policy of continuing to expand opening up and stabilizing foreign trade, China's export value will remain relatively largeThe second is the support of economic resilience. Since 2020, China's industrial production has remained relatively resilient, especially the new economic momentum represented by the equipment manufacturing industry has played a significant supporting and driving role, and the release of excess savings in the residential sector can also promote the improvement of terminal consumptionAgain, it is the underpinning of policy space. Previously, China's countercyclical adjustment measures were relatively cautious, and there is still relatively sufficient room for policy adjustment in China. Monetary policy is expected to further strengthen monetary and credit easing, and continue to provide sufficient liquidity for the real economy and a financing environment with lower interest rates. Fiscal policy is also expected to further increase spending efforts to promote the economy in investment, consumption and industrial areas to accelerate the pace of repair, including China's issuance of 1 trillion yuan of government bonds in October, considering the pace of spending and fiscal multiplier, can drive GDP growth in 2024 by about 06 to 08 percentage points.
China's support for new drivers such as high-tech, equipment manufacturing, and the digital economy is expected to boost fixed asset investment and support China's productivity and economic growth in the medium to long term. In recent years, China has continued to roll out a number of policies and measures to support high-tech manufacturing, which have achieved remarkable results in promoting the sustainable growth of the new driver economy. In the first half of 2023, China's new energy vehicle sales reached 37470,000 units, with a market share of more than 28%. China's new energy vehicle production and sales have ranked first in the world for eight consecutive years. At the same time, China has formed the world's most complete photovoltaic industry chain, and continues to make breakthroughs in key core technology fields, as of the end of the third quarter of this year, the total output value of the photovoltaic industry has exceeded 12 trillion yuan. In the context of adhering to the transformation of growth drivers to consumption and technological innovation, scientific and technological progress and stable policy support will be able to support the improvement of China's productivity in the medium and long term, and stabilize its core position in the chain.
Although the additional issuance of trillions of treasury bonds in the fourth quarter has led to the expansion of the fiscal deficit in 2023 and the increase in China's general debt burden, China's fiscal revenue has maintained a recovery growth since the beginning of this year, and the additional issuance of trillions of treasury bonds will also free up a certain amount of disposable fiscal space for local governments and play a greater role in investment and the economy. At the same time, compared with advanced economies such as Europe and the United States, China still has ample fiscal space to control the rise in debt risk. In the first three quarters of 2023, China's general public budget revenue increased by 8% year-on-year9%, and the local general public budget revenue increased by 9 percent year-on-year1%, nearly half of the regions have double-digit growth. After the issuance of an additional 1 trillion yuan of government bonds in the fourth quarter, China's fiscal deficit ratio increased to 3.8%, superimposed 1With the centralized issuance of 37 trillion special refinancing bonds, the general debt burden ratio further increased by 2 percentage points to 558%。However, compared with major developed economies such as the United States, China's leverage ratio is still at a low level, and China's overall debt burden ratio is still generally lower than that of countries of the same level. The additional issuance of trillions of treasury bonds releases a strong intention to stabilize growth, and supports the smooth operation of the cross-year economy through the establishment of a cross-year use mechanism, which can theoretically boost GDP by about 06-0.7 percentage points, and in the context of the intensification of the contradiction of "reducing revenue and increasing expenditure" of local finance, trillions of national bonds will be transferred to local use and repaid by the first principal and interest, which is conducive to alleviating the pressure of local rigid expenditure, freeing up funds to make up for the financing gap in other areas, and to a certain extent, curbing the excessive willingness of local governments to borrow and the re-expansion of hidden debts, and can also form a synergy with this round of special refinancing bonds to provide more space for the "package of debts" and better balance the relationship between debt and economic growth. At the same time, benefiting from convenient financing channels, China's debt repayment capacity has always been at a high level, and the proportion of general debt interest expenses in fiscal revenue has remained below 8%, which is comparable to the strength of countries at the same level. In addition, the country's relatively high savings rate and predominantly domestic debt structure also support its overall strong fiscal strength. For now, China has ample fiscal space to contain the rise in debt risk.
Since 2023, due to the lack of demand from major developed economies and the adjustment of global industrial chains, the exports of emerging Asian economies have collectively weakened, and China's export performance in the same period is still better than that of major global economies. A solid industrial chain foundation, strong production capacity, and continuous optimization of the export structure under the upgrading of the industrial structure will still provide support for China's future surplus. At the same time, China's external debt exposure remains limited and external financing strength is strong. Despite the decline in the pull effect of overseas productive external demand on China's exports, with exports declining year-on-year[1], China's export performance is still better than the global average and the best performance among Asian economies. In the first three quarters of 2023, China's goods** surplus was US$454.2 billion, showing some resilience, with a current account surplus of 1.2 billion in GDP6%, which is still at a good level. From the perspective of the first structure, China's export commodities are diversified, and during the epidemic period, it fits the global consumer demand for electronic products and other products, realizes the staggered growth of exports, and at the same time, the dependence on energy resources is lower than that of countries such as Japan and South Korea, and the impact of the rise is relatively small. In the medium and long term, China's strong production capacity and the continuous optimization of the export structure under the upgrading of the industrial structure will effectively support the improvement of China's export prospects and the status of the industrial chain. At the same time, China's abundant foreign exchange reserves can provide strong support for external debt repayment, and as of the end of June 2023, China's foreign exchange reserves stood at 3$19 trillion, which remained relatively stable. China's dependence on external financing is low, and its external debt, which is mainly held by domestic enterprises and banks, is relatively small, and its short-term external debt foreign exchange reserves are 4404%ï¼›Considering that China's capital account has not yet been fully opened, and China's good development prospects are still strong attractive to overseas capital, the risk of capital outflow is generally controllable.
CCXI believes that China's rapid economic performance and long-term stable social environment in the past decade will support China to maintain strong institutional strength. China's political system is complete, mature and efficient. The basic political system and strong leadership ensure the long-term stability and effectiveness of the political environment, and maintain long-term continuity in policy making.
The uncertainty of the development of the U.S.-China relationship is a major geopolitical risk for China. The San Francisco summit between the Chinese and US heads of state reached a number of important consensuses, but there are still certain variables in the development of Sino-US relations in the absence of a fundamental change in the US strategy toward China. The development of U.S.-China relations and between China and its traditional allies could pose a potential threat to China's exports, manufacturing investment, and the restructuring and stability of the U.S. chain.
Factors that may trigger a rating upgrade:
CCXI will consider upgrading China's sovereign credit rating if there are indications that China is effectively advancing structural reforms, achieving steady and sustainable economic growth while maintaining stable macro leverage, and significantly reducing geopolitical risks.
Factors that may trigger a downgrade:
CCXI will consider downgrading China's sovereign credit rating if structural reforms fail to proceed normally, the scale of leverage ratio and implicit debt continues to rise, economic growth unexpectedly stagnates, and the long-term stable political situation undergoes significant adverse changes.
Editor-in-charge: Chen Yuyao |Review: Li Zhen |Supervisor: Wan Junwei.