EFTA01385474.pdf

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite iFigure 41: China's leverage is ahead, Owne's debttoGDP tem dump 1980-1Hl7 3:63 202 274 24/1 M. 00/91,01).013 253 •13Sols Ieere 225 211 203 13Crwai301.4.11101.11 I 150 1~1 1„ ,a7.23 125 130 M la 1m Ix o 4405455.35 15205 02 100 """"""" • *Sow vsnesei 0 nnnnn " " • MUM gstetttsstsittsttitstseeeeeeteeemete &ma Omadoi&Memo n •!Shalom IMmom* • Infrastructure investment, a major contributor to investment growth, is set to slow down. Infrastructure accounted for 54% of investment growth in Q1-3 2017. Local government financing vehicles (LGFVs) helped channel large amount of bank loans and market financing into infrastructure projects. As LGFVs continued to pile up debt, their financials deteriorated (Figure 42, 43). The central government is now putting stricter rules on LGFV financing. The debt swap program that helped relieve LGFVs of high debt is also coming to an end. These would constrain LGFVs' ability to borrow and invest in infrastructure. [Figure 42: LGFV debt is still piling up IFigure 43: Deteriorating financials, median LGFV 35 radon 05 2.5 t. GFV debt m..% of GDP. the SROA % eIntenni coverage reti5 WEI 30 so 2.0 25 30 20 25 IS 15 20 15 1.0 1 10 5 5 0.5 0 •■ 0.0 em •11 r4 Fd 9xxo• Dana*Ses*, nwo Sono 045./M4E0ft WING, elan. CHIC shea IEST basal tit am liteIna ammoand 1150111SUMM A tightening bias in macro policies Following the 19th party congress in Oct, policymakers sent strong signals for ZillW2.12hami. Ph.D. a structural shift in policy focus. Headline GDP growth is no longer a priority, Chief Economist instead, they will focus more on growth quality and containing risks. +852.22038308 • At his speech addressing the party congress, President Xi emphasized growth quality over quantity more than any of his predecessors. Improving Yi Xiong, PhD. "social productivity", which had been the main goal of the party for more Economist than two decades, has to give way to "quality and effectiveness of +8522203 6139 development". He did not mention the growth target for 2020 in his speech. • PBoC's veteran Governor, Zhou Xiaochuan, warned about the risk of a"Minsky Moment" during a group discussions at the party congress. What he meant was the risk of a major crisis caused by excessive risk taking in the financial sector. Zhou later published an article on PBOC's Deutsche Bank Securities Inc. Page 201 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086760 CONFIDENTIAL SDNY_GM_00232944 EFTA01385474