Latest assessments by international rating agencies indicate that the primary credit challenge facing China’s economy lies in persistently weak domestic demand. Under a baseline forecast scenario, China’s real GDP growth rate for this year is expected to remain at 4.3%. However, if the geopolitical situation deteriorates further, particularly if the blockade of the Strait of Hormuz persists until the end of the second quarter, there is a risk that economic growth could slip to 3.8%. This adverse scenario hypothesis reflects the potential impact of external shocks on China’s credit status. Energy supply volatility and trade chain disruptions stemming from U.S.-Iran tensions add extra external pressure. Even if signs of de-escalation appear in the conflict, if the recovery pace of regional logistics and oil transportation lags behind expectations, credit pressure faced by related industries will intensify.
Such risks are concentrated in specific sectors with significant business exposure rather than a broad-based decline. The chemical sector requires high vigilance; tightening raw material markets have pushed up production costs and suppressed capacity utilization, delivering a particular blow to enterprises relying on imported raw materials and lacking vertical integration. The downstream petroleum and natural gas industries also bear pressure from compressed profit margins, yet large state-owned enterprises and integrated groups possessing scale advantages demonstrate stronger risk resistance capabilities. On the policy front, the government’s policy mix may continue to tilt toward the supply side, potentially limiting the space for the household sector’s expenditure to move toward a stronger recovery. Although measures aimed at promoting consumption have been rolled out sequentially, their mitigating effects may be relatively limited. If capacity expansion brought about by industrial upgrading outpaces demand improvement, it could instead aggravate debt burdens and weaken corporate pricing power.
The real estate market remains a key factor dragging down the credit conditions of various industries. Recent data on commodity residential sales continued a weak trend, with full-year sales volume expected to fall between 7% and 8%. It is worth noting that market performance in the first two months of this year already exceeded prior annual forecasts on the negative side, with new home sales plummeting 22% year-on-year, sales area shrinking 16%, and average prices falling 7%. Although local-level easing policies and housing provident fund reforms may boost home-buying willingness to some extent, coupled with a rebound in new listing supply potentially helping narrow the drop in the second quarter, market sentiment remains fragile against the backdrop of employment market pressure, high housing inventory, and increased geopolitical uncertainty. Whether the trend can truly reverse remains unclear.
