The property market in China, despite its growth being stifled by tighter credit supply, still plays a central role in the mainland's macroeconomy because of its effects on downstream industries, Moody's said in a report.
While supply chain remains the most important of four channels that drive the potential impact of the property market on China's economy, an increase in the exposure of the financial system was also seen in 2017. Lillian Li, a Moody's vice president and senior analyst, attributed the increase largely to the rise in mortgage loans issued by the formal banking sector and the increasing role played by shadow banking in providing credit to the property sector.
"However, tighter regulations for shadow banking are likely to restrict the supply of credit to these borrowers, leading to some refinancing risk," Li said in a note.
Moody's added that China's monetary and fiscal policy and urbanization fueling housing demand continue to mitigate the macroeconomic effect of developments in the property market, avoiding possible sharp and prolonged corrections in property prices.
The rating agency also noted that it is observing "some signs" that economic growth in the country is less directly linked to investments in the property and construction markets, adding that demand from the two sectors are connected to 25% to 30% of China's gross domestic product.
