Problems in China’s economy could push oil prices down

© RIA Novosti / Ilya Petalive of ChinaProblems in China’s economy could push oil prices down© RIA Novosti / Ilya Pitalev

International rating Agency Moody’s has revised the credit rating of the China sovereign reducing this figure from the level Aa3 to level A1. Despite the fact that the problems in the Chinese economy say since the beginning of the decade, has more than 25 years — since 1989 — a key marker has not been revised. The decision by Moody’s could affect the investment attractiveness of China. Problem for Russia in the economy of China may result in lower oil prices.

Among the arguments raised by Moody’s to justify its decision, substantial public debt of China, amounting to 260% of the national GDP. Partially the figure consists of corporate debt, whose burden nevertheless falls on the budget. There is concern that some of these debts are «bad» and will never be paid. Beijing rejects this view, however, international evaluators, seem to have taken it into account.

Another reason that led to the downgrade — the apprehension that the growth rate of China’s GDP will continue its frightening decline. In 2015, the Chinese economy grew by 6.9%, in 2016 — 6.7%. Analysts admit that by the end of the decade Chinese growth will decline to 5%, reports the BBC.

In this context, China and related semi-public-semi-private companies can do even more debt, because the model of economic growth in China for decades, is based on the refinancing. However, excessive debt can become a negative factor and pull the second economy in the world down.

What this means for Russia

In conversation with RIA Novosti President of the Center for strategic communications Dmitry Abzalov said that the markets of the PRC is determined by the cost of some of the leading items of Russian exports, in particular metals. Economic problems in China are able to pull down commodity prices, including oil. The same opinion is shared by analysts in the Western world.

«Chinese credit bubble is a key risk to commodities such as hydrocarbons», — formulates the resource According to the relevant resource Oilprice.som, «in 2016, Chinese demand for oil grew at a record slow pace for the last three years. If the Chinese economy continues to slow down, this can bring the oil prices out of yourself, seriously delaying the movement towards balance in this market».

Associate Professor, faculty of world economy and international Affairs Pyotr Mozias told RIA Novosti that a possible link between economic problems in China and oil quotations not so clear. «The downgrade in credit rating may have a depressive effect on the influx of so-called speculative investment in China, and ultimately will affect the rate of economic growth. And yet the situation remains uncertain: to swing down, China will need an additional negative factors.» Mozias sees Russia’s potential opportunities in the background of China’s problems. «There can be a situation in which the demand of China in the Russian commodity will fall. But at the same time China could face a relocation of its production facilities, and if so, the investment on his part be won and our country.»

As often happens in the decline in the credit rating, the Chinese authorities have accused Moody’s of bias. On the approval of Beijing, the evaluators underestimated the efforts of the government to remedy the economic situation, and the fact that in the last half of the GDP of the PRC grew at a higher rate than usual. In Beijing show that have serious economic potential, to ignore the opinion of Moody’s: in the hours after the decision announcement, the Renminbi has remained stable.

However, following the revision of the credit rating of one of the companies involved in the assessment, may be followed by a similar decision taken by others. «The trend has not yet formed. A lot will depend on what position will the Agency Standard & Poor’s,» — said Dmitry Abzalov.