News Room - Business/Economics

Energy, shipping and steel would be the hardest-hit sectors in Asia Pacific (APAC) in the event of a sharp slowdown in Chinese growth, says Fitch Ratings.

It said the sector outlooks for APAC steel, energy and global shipping were negative even under the current forecast expectations where China slows only gradually.

Asian manufacturing and technology sectors would also be significantly affected, given the scale of Chinese demand and its position in the regional supply chain, it said in a statement here, Friday.

Fitch said its core view remained that China would not experience a 'hard landing', with gross domestic product (GDP) growth forecast to slow to 6.3 per cent and six per cent in 2016 and 2017, respectively.

But some risks remained of a disorderly structural rebalancing, where growth slows more quickly than forecast, it said.

Fitch has assessed the impact of a hypothetical scenario in which China's economy were to experience a rapid and substantial deceleration over a three-year period to end-2018, with shocks to both investment and consumption.

Under this scenario, Chinese GDP growth would fall to an average of 2.3 per cent per annum from 2016-2018, said the rating agency.

Fitch said a sudden slowdown in China would act as a significant drag on global growth.

APAC countries with the most extensive trade and investment connections with China would be the most exposed, and included Hong Kong, Singapore, Korea, Taiwan and Japan, it said.

Global commodity prices would stay lower for longer, and capital investment and export and trade-linked sectors would face the most significant effects on financial performance and credit profiles, it added.

Fitch said APAC manufacturers of heavy equipment and machinery and dry-bulk shipping companies, would suffer as Chinese demand and investment growth, and by extension, regional trade would fall rapidly.

It said chemicals, ores and minerals were also among the largest categories of exports to China from the APAC region, while consumer product manufacturers such as office and telecom equipment supplies would also be exposed.

If Chinese consumer demand growth were to fall significantly under this scenario, then domestic technology firms would also experience pressure on revenues and margins, it added.

Furthermore, the broad-based effects on global demand from China's slowdown would also weigh on regional technology firms, given China's heavily integrated position in the APAC supply chain.

China imports large volumes of electronic components from the APAC region and exports finished products, it said, adding if global consumer demand growth were to fall significantly, then price competition among producers would also be likely to rise.