Hong Kong, South Korea, Japan will be the most affected among major economies in the region in the event of a sharp slowdown in Chinese GDP growth, according to Fitch Ratings.
Global growth and economic stability will also come under severe pressure if there is a “hard landing” in China, the credit rating agency warned.
Fitch’s base case projection for the Chinese economy is for expansion of 6.8 percent this year and 6.3 percent in 2016.
However, it also warns of an alternative scenario in which growth could slide to as low as 3 percent next year if there a collapse in public and private investment.
The shock scenario assumes, among other things, that public investment will drop 4 percent next year and that consumption growth will fall to 5.6 percent in 2017 from the 2014 pace of 8.3 percent.
This worst scenario would lead to a potential 10 percent depreciation in the renminbi, a double-digit decline in inbound foreign direct investment, an over 4-percent fall in property prices and deteriorating asset quality, Fitch said, according to the Hong Kong Economic Journal.
Export-oriented regions in Asia will see their combined gross domestic product plunge, with Hong Kong’s growth estimate for 2017 seen falling short from the base case scenario by 4.5 percentage points and that of South Korea by 4.3 percentage points.
Japan is likely to experience another two years of economic contraction in the worst scenario, while Taiwan and Singapore will also face drastic slowdown.
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