China Credit tightens on growth slowdown

Chinese policy makers make renewed efforts to minimize financial risks as it is apparent that China is inching towards a growth slowdown. The optimism of the international investor has now waned. This is due to restrictions on leverage. The latter, in turn, pushes up the domestic borrowing cost. Less confidence in the future is also being reported by medium and small sized commercial concerns. Negative thoughts pervade among sales managers. Outlook for the steel market is dented. It did not help matters that China's debt rating has been downgraded by Moody's Investors Service during the fourth week of May.

Decline all around

The Standard & Poor Global Platts China Steel Sentiment Index dipped to 33.1 in May from April's 45.1. This is weighted down by the domestic steel orders outlook. This gauge is created from a survey comprising China headquartered participants. The number of participants varied from 75 to 90 and included steel mill executives, and also traders.

The Small and Medium Enterprise Confidence Index by Standard Chartered Plc is in for a decline for second consecutive month in May. It dipped a little from 58 to 56.9 during April. According to economists Ding Shuang and Yan Se, both expectations and present performance suffered a drop, thus exerting pressure on profitability and the labor market. It has now become much tougher for medium and small enterprises to get access to credit. Costs of funding has also become much higher.

Cause for optimism

Moody's ratings for China cut could mark a new turning point for the country. The second biggest economy of the world is suffering a weakening momentum after an unanticipated expansion in first quarter. However, not all are gloomy, as consumers continue to spend, rising factory gate prices and also an upside in home prices. All of these defied all predictions of having a hard landing.

As per a China Economic Panel survey, experts of global financial markets are oriented towards pessimism when it comes to economic outlook. The panel is joint project of Shanghai's Fudan University and Mannheim, Germany based European Economic Research. Expectations reading dipped to – 0.1 in the month of May. It was 17.7 during April- the most since the latter period of 2015. Assessment of present economic situation is now dampened, dipping to 12.2 from 17.6 in May and April respectively. Michael Schroeder, senior researcher, ZEW, said that the optimistic sentiment observed in previous survey has faded. However, the outlook in the longer term continues to be stable.

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