Page 46 - bne_Magazine_July_2018

46 I Eurasia bne July 2018
A coal truck on the road from Mongolia's giant Tavan Tolgoi coal.
Eurasian commodities exporters at risk from China deleveraging
Clare Nuttall in Bucharest
Mongolia and other Eurasian commodities exporters were among the countries singled out by rating agency Fitch in a new report as being vulnerable to a potential slowdown resulting from China’s efforts to rein in debt.
Beijing has been seeking to stabilise its corporate debt to GDP ratio as the debts of state-owned enterprises (SOEs) and local governments have soared in recent years, even though China’s general government debt remains modest by international standards. These efforts are set to slow business investment and temper China's medium-term economic growth – and given the sheer size of the Chinese economy, the world’s second- largest, this would have a serious impact on the economies that supply it with raw materials.
Fitch projects a sharp capex slowdown that would reduce China’s GDP growth by around 1pp per year for several
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years relative to baseline. Fitch analysts further estimate that global oil and metals prices would be 5%-10% lower than under its baseline scenario – which again would have potentially dramatic consequences for Eurasian exporters, several of which have only recently emerged from economic contractions prompted by low oil prices.
While net commodity exporters across Eurasia would be affected by a decline in direct exports to China and weaker terms of trade, according to Fitch, the
under its IMF programme, would probably be the most vulnerable of Asia's net commodity exporters,” the report says. “China accounts for all
of its coal and iron ore exports, and it would be difficult to divert them to other markets.” Sandwiched between China and Russia, Mongolia is itself a major commodities producer, and with a small domestic population, exports to China are critical to Mongolia’s economy.
Trade with China accounts for approxi- mately 60% of Mongolia’s total trade,
“Mongolia would be most at risk from a slow down in trade with China”
rating agency considers that within the region Mongolia would be most at risk from a slow down in trade with China.
“Mongolia, which has made progress
while trade with Russia makes up another 15-20%, according to data released by the statistics office in Ulanbataar last month. Highlighting the role the Chinese market plays in Mongolia’s economy, the recov-