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Speaker 1: We are joined now by Lena Choi, she's a senior

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Speaker 1: vice president at Moody's Investors Service, to talk about the

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Speaker 1: outlook for China's non financial companies. And Lena, I know

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Speaker 1: that you are closely watching credit conditions in China. Can

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Speaker 1: your outline for some of the challenges there. Thank you again,

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Speaker 1: good morning, thanks for having us UM. We definitely think

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Speaker 1: that the credit conditions for non financial Chinese companies are

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Speaker 1: going to be negative UM looking out into next year

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Speaker 1: UM and that's a result of both domestic challenges continue

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Speaker 1: to be present as well as some external risks also intensified.

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Speaker 1: Let's start with some of the internal UM. Precious property

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Speaker 1: sector down downturn will continue to have negative effect on

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Speaker 1: the supply chain along property sectors, associated sectors and depressed

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Speaker 1: UM UM and we can demand UM in a way.

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Speaker 1: And also more importantly, the funding conditions UM for developers

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Speaker 1: and with contagion to the broader high old space is

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Speaker 1: somewhat concerning UM as well. So that's on the domestic front. Externally,

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Speaker 1: we are also seeing because of the aggressive rate hikes

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Speaker 1: UM in a number of developed economies, slowing global growth

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Speaker 1: UM that would lower the demand for China exports of course,

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Speaker 1: and also you know, ongoing through political tensions potentially reduced

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Speaker 1: capital inflow. And last but not least, you know, the

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Speaker 1: lingering supply chain bottlenecks as a result, UM of the

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Speaker 1: ongoing COVID issues are probably going to raise course input courts,

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Speaker 1: primarily across many different sectors. Lena, you're laying out a

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Speaker 1: pretty bearish case there. Can we talk about the risk

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Speaker 1: of default? Is that something that you want to address? Um,

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Speaker 1: Actually we do, and especially on the property UM front.

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Speaker 1: I think you have also heard from my colleagues in

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Speaker 1: the property team in the last couple of days the

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Speaker 1: definitely we are worried about the funding conditions. Just to

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Speaker 1: give you a sense, um, you know, the broader rated

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Speaker 1: high old space next year, UM, we are looking at

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Speaker 1: sixty billion US dollar of maturity coming up for the

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Speaker 1: rated UM portfolio HIO space and a majority of that

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Speaker 1: UM is actually offshore maturity. So UM, yes, you know,

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Speaker 1: we are still quite concerned about the funding condition being

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Speaker 1: very tight and we cannot exclude um, you know, probably

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Speaker 1: continuous continuation of UM some difforce for financially weak developers

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Speaker 1: and higher companies. We did have a support package for

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Speaker 1: the property sector. As you well know the sixteen point plan,

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Speaker 1: developers can access more money from pre home sales. But

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Speaker 1: I'm getting the feeling you feel that this doesn't really

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Speaker 1: address the underlying problems in China's property sector. UM. You know,

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Speaker 1: we we definitely think the most recent UM support packages

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Speaker 1: UM targeted to alleviate the liquidity pressure of developers UM,

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Speaker 1: the financially weak developers in China, and also to prevent

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Speaker 1: UM to to to to a greater extent incomplete option

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Speaker 1: of the projects kind of risk. Those targeted measures. We

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Speaker 1: think it's credit positive UM. But however, it will probably

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Speaker 1: take some time, yeah, UM, for us to monitor how

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Speaker 1: well this can be executed and whether it can sustainably

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Speaker 1: revive contract itself, which Moody still forecast UM to decline

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Speaker 1: by ten to UM for next year. So away from

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Speaker 1: the kind of the central government, if you look at

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Speaker 1: what the central bank can do, I mean, is there

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Speaker 1: a way for the p BOC. Is there a situation

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Speaker 1: that you can envision where maybe policy is tweaked to

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Speaker 1: the extent that it can relieve some of the stresses

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Speaker 1: that are building or is that clearly an impossibility at

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Speaker 1: this point? I mean that it's too entrenched a lot

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Speaker 1: of the risk that you have outlined UM in multi

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Speaker 1: space case. UM, that's that underlies the negative credit conditions

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Speaker 1: on non financial companies. UM. We are not assuming you know,

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Speaker 1: aggressive monetary or physical easy. UM. We don't think that's

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Speaker 1: likely and so far we have not seen that kind

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Speaker 1: of aggressive easing UM per se. UM. You know, we

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Speaker 1: will just have to monitor how the situation goes. You

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Speaker 1: can't do charts on radio, obviously, but we did have

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Speaker 1: an interesting Bloomberg chart out today. It shows the China

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Speaker 1: credit impulse and there's a good leading indicator of earnings trends.

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Speaker 1: Now that chart shows that China is about to enter

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Speaker 1: a cyclical ballmarket. Can we trust that sort of reading.

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Speaker 1: I'm probably not the best person UM to take a

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Speaker 1: you know, charting or interest rate direction UM question. But UM,

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Speaker 1: as I said, on the earnings front, UM, we do

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Speaker 1: see some bifurcation UM for the rate of portfolio UM.

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Speaker 1: First we see the s OE state owned enterprises, you know,

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Speaker 1: credit differentiation in favor of the s O s because

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Speaker 1: of their strong market position, because of their more diversified

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Speaker 1: and better on shore funding access. UM, we do expect

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Speaker 1: their earnings to stay stable. UM. And leverage also to

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Speaker 1: stay stable. UM. On the private own, privately owned company side. UM.

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Speaker 1: Obviously we have spoken about the property developers. They are

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Speaker 1: going to be still in a pretty tight and difficult situation. UM.

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Speaker 1: But some of these UM rated UM, you know, I

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Speaker 1: G rated market leaders in some of the private UM

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Speaker 1: sectors UM, like food and beverage for example, UM, we

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Speaker 1: do expect them to stay relatively steadier compared to PS.

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Speaker 1: So I'm listening to you and I'm wondering what the

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Speaker 1: credit default swap market is like in China, because if

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Speaker 1: I'm an investor in fixed income, given everything that you've

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Speaker 1: laid out, I want an insurance policy. How developed is

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Speaker 1: the CDs market on the main one, UM, you probably

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Speaker 1: have to talk to our you know, our resident experts

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Speaker 1: on on the structure finance front. UM that that that

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Speaker 1: that's really not my expertise area. Okay, So if you

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Speaker 1: had to hedge, if you were advising a client, very quickly, Lena,

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Speaker 1: is there a way to hedge against some downside risk? UM.

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Speaker 1: We cannot advise on hedging of our positions, and we

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Speaker 1: don't make comments on trading policies per se. But what

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Speaker 1: I can't say on the credit side. I think definitely

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Speaker 1: pockets of ongoing monitoring. Clothes monitoring would be the liquidity

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Speaker 1: conditions um for the high old space. Okay, so that's

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Speaker 1: the leading indicator, and if things go negative on that front,

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Speaker 1: avoid at all costs. Can I say that much safely?

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Speaker 1: I just did. I hope you agree with me. Lena.

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Speaker 1: Thank you so much for being with us in a

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Speaker 1: Choi is senior VP at Moody's Investors Service, joining US

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Speaker 1: and Dea Break Asia