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Wednesday 28.09.2016 | Name days: Sergejs, Svetlana, Lana
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China’s dual speed economy: winners and losers

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIn 2015, China’s economic growth was 6.9% – the slowest growth index in the past 25 years. Economic growth rates will remain slow in 2016 and 2017. Structural reforms that are being realized in the country to assist the development of services and consumption make China’s established dual speed economy even more pronounced, according to Coface analysts.

Winners or industries with long-term growth potential are pharmaceutical and retail trade sectors in this case. Coface’s financial analysts have given these industries low or medium risk assessment. One exception is ICT sector – this industry is part of the winners group. However, because of powerful competition, this sector is given a high risk assessment.

China’s pharmacy sector still shows stable profit. It is also one of the few sectors that is least dependent on loans. The pharmacy sector’s development is secured by constant growth of the middle class and gradual ageing of the population.

The losers or industries will growth problems are chemical and metal processing industries. These economic sectors are given a high or very high risk assessment. Companies working in those industries have the highest possibility of going bankrupt. Medium high or high risk level is given to industries that do not benefit from structural reforms. These include agriculture, paper and wood processing industries and the textile industry.

The country’s construction sector is also at risk. China’s construction and metal processing industries are at risk because of debt problems and problems caused by a large number of fictive companies. Decline in growth of China’s construction sector will continue in the second half of 2016. Demand for construction materials is also in decline in the construction sector. This especially applies to cement and steel products – the market suffers from overproduction.

«It is expected that China’s government will continue its initiated reforms, concentrating on industries with high risk potential. In spite of reforms, China’s economic growth rate in 2016 and 2017 is expected to decline. It is also possible that the number of companies with high credit risk will increase there as well. Latvian companies that cooperate with China will have to keep this in mind,» – says Coface Director in Latvia Arnis Blumfelds.

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