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Announcement:

Moody's latest Inside China examines US-Sino trade tensions, debt-equity swaps, property and banking sectors

 The document has been translated in other languages

02 May 2018

Hong Kong, May 02, 2018 -- Moody's Investors Service has just published its May edition of Inside China, a quarterly newsletter. In this edition, Moody's examines the US-Sino trade dispute. In particular, Moody's says that the direct effects of proposed US tariffs on China's exports and economy are likely underestimated, and that the full extent of their overall impact will be seen through knock-on effects.

Moody's says that domestic supply chain-related issues could magnify the effect of the tariffs on the Chinese economy and specific sectors, because of an increasing domestic value-added component of Chinese exports.

On China's debt-for-equity swap framework, Moody's says that this framework renders near-term liquidity relief to affected Chinese corporates, giving them time to restore their business and credit profiles.

However, for lasting deleveraging, debt-for-equity swaps would need to be combined with well thought-out and closely monitored turnaround plans to enable the companies concerned to improve cash flow and recapitalize; otherwise, default risk is deferred, not eliminated.

With the property sector, Moody's expect China's residential property market to become tougher for developers over the next 12 months, because of tightening domestic credit conditions and a resulting slowdown in nationwide sales.

Nevertheless, most of the developers that Moody's rates — particularly the large and financially healthy companies — will continue to outperform the broader market in contracted sales and increase their market share, because of their better access to funding, financial strength and stronger sales execution.

As for the banking industry, the 2017 results announced by the top five Chinese commercial banks and Postal Savings Bank of China, four joint stock commercial banks and two city commercial banks are in line with Moody's view that the system has entered a slower growth period and reacted to the broad directive to reduce regulatory arbitrage, opaque investments and other shadow banking activities.

Moody's expects that these adjustments will continue through 2018, with a key driver being tighter scrutiny of bank compliance with wholesale funding caps.

The May edition of Moody's Inside China newsletter contains the following articles:

• Cross-Sector — China: New US tax law has few credit implications for Chinese sovereign and companies

• Cross-Sector — China: Debt-equity swaps provide liquidity relief, but some liabilities remain in system

• Trade — China: Tech most exposed to US tariffs; supply chains to amplify effect on other sectors

• Property — China : Scale and financial strength are key to navigating tougher business conditions

• Infrastructure & Project Finance: Tariff adjustment delay is credit negative for China's coal-fired power generators

• Banks — China: Asset quality and margin improvement will support profitability in 2018

• Insurance: China's new asset-liability management rules for insurers are credit positive

Subscribers can access the report at:

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121276

The report may also be found through Moody's topic page "China's trade-off: Deleveraging and stability", available at http://www.moodys.com/chinarebalancing. This page provides a centralized source for Moody's research related to key credit issues in China as the country's macroeconomic story continues to unfold.

Recent Moody's publications relating to China's trade-off include:

• Banks — China: Asset quality and margin improvement will support profitability in 2018

• Telecom Equipment: US bans Chinese telecom equipment maker ZTE from buying US components, a credit positive for its rivals

• Banks: China cuts banks' required reserve ratio, a credit positive

• Property — China : Scale and financial strength are key to navigating tougher business conditions

• Property — China: Projected 2018 financials suggest rated developers' credit quality will diverge more

• Securities Companies — China: Operating risk remains high in stock pledged lending business, despite more regulations

• Structured finance — China: Securitization is growing as a funding source for the economy

• Trade — China: Tech most exposed to US tariffs; supply chains to amplify effect on other sectors

• Automotive — China: Lower import tariffs and foreign ownership relaxation to have mixed impact

• Trade — US and China: Rising uncertainty will magnify credit effects of weaker trade relations

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Chris Park
Associate Managing Director
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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