Chart 1

China's COVID policy will be a key credit factor for the rest of 2022, and beyond. Continued strict lockdowns of cities and towns are hitting economic activity, leading to weaker growth. S&P Global Ratings believes this will be a key development affecting domestic employment, investor sentiment, supply chains, and broader capital markets. Alongside, there's a mounting confluence of credit headwinds from the inflation-suppressing Fed and Ukraine-Russia conflict. All this could heighten downside risks for institutions and corporates, regionally and globally.

China's continuing shutdowns of cities and towns, notably Shanghai, have hit demand and business operations. This has led us to reduce our base-case 2022 GDP growth forecast for China to 4.2% from 4.9%. In the event that restrictions on people mobility are extended to another economically important city, the growth rate could further fall to 3.5%. This is our downside scenario.

Transport, retail, leisure, property.   The corporate sectors with the biggest hits on demand are, as expected, mobility-dependent: transport, retail, and leisure. In addition, suppressed sales and delays to housing construction and delivery have put the beleaguered property sector under more strain. Housing sales have dropped sharply in the first half of 2022, exacerbating the liquidity stress of developers.

Auto, technology.   China's supply-chain disruptions will likely persist for the rest of 2022. The resulting slowdown in sales and the production pipeline will halt the auto sector's recovery, in our view. Technology hardware and manufacturing firms are struggling with logistic constraints and higher input costs.

Manufacturing, services, industrial production.   Many corporates will find it difficult to pass on higher energy and commodity costs to customers given the backdrop of weaker consumption in the economy. In particular, we expect the profit margins of manufacturing and services, and midstream and downstream industrial production sectors to be hit.

Banks.  Chinese banks are set to face an uneven effect from asset quality pressures. Credit divergence between the large and small banks will deepen further, while the deteriorating financial health of small businesses will call for higher loan-loss provisioning. Meanwhile, banks could be asked to marginally increase loan growth to support the economy despite lower lending rates and fees.

Insurance, structured finance.   China's slower economic growth could impede the insurance sector's topline growth and ongoing progress in market reforms. Spillover effects from turbulent capital markets could also strain insurers' earnings in 2022, denting capital buffers. Meanwhile, for structured finance, delinquency rates of our rated deals could deteriorate as some borrowers face liquidity stress and lockdowns constrain in-person collection efforts.

Governments.   The central government has called for increased infrastructure investment. However, our base case anticipates no additional and material government funding stimulus or substantial relaxation on new borrowings by local government financing vehicles (LGFVs). The sovereign's longer-term credit standing and fiscal performance prospects will remain strong, in our view, with a low chance of aggressive growth measures, or credit stimulus.

For the local and regional governments, fiscal deficits will widen amid expectations of continued expansionary fiscal measures and further tax cuts.

Refinancing.   Refinancing risks could turn acute for Chinese issuers. This is particularly true for those with offshore financing needs amid a weakening renminbi, jittery global investor sentiment, and a tight external financing environment. The divergence in monetary policies between China and the U.S. exacerbate these effects. While such financing challenges would mainly hit speculative-grade entities, this could spread up the credit risk spectrum, particularly with debt maturities looking elevated over the next few years.

Macroeconomic Outlook

China's stringent lockdown measures have prompted us to revise down our forecast for Chinese GDP growth in 2022. The country's economy will expand 4.2% this year, by our estimate, a meaningful drop from our prior assumption of 4.9% growth.

In our view, the government's COVID stance won't shift substantially any time soon. To reckon with the possibility of fresh, widespread lockdowns that could have a major economic effect, we also have a downside scenario that assumes China's GDP growth in 2022 falls to 3.5%.

The recent COVID-related restrictions in Shanghai and elsewhere have had a significantly more severe economic hit than most prior lockdowns in China.   During outbreaks in cities such as Shenzhen, aggressive measures early on seem to have nipped transmission in the bud. In Shanghai, a less-strict response in the beginning led to a longer-lasting lockdown. Meanwhile, onerous transport restrictions have caused major transport and logistics bottlenecks in the Yangtze River Delta.

The effect on manufacturing output and supply chains has been large. Supply chains in the region are sophisticated and intricate, making them particularly vulnerable to logistics problems. The composite output index of the official purchasing managers' indexes (PMIs), which measures output in manufacturing and elsewhere, fell to 42.7 in April, from 48.8 in March and 51.2 in February. The PMI plunge to 28.9 in February 2020, when COVID-triggered lockdowns halted production across China, still sets the standard (see chart 2).

Chart 2

While industrial production has been hit less hard than service sector activity, supply disruptions have been substantial.   Between February and April, the nonmanufacturing activity PMI component fell 9.7 points to 41.9, with sectors such as transport, offline retail, and catering particularly badly hit. By comparison, the output component of the manufacturing PMI declined 7.8 points to 42.6.

Within manufacturing, output has held up well in heavy industry given simpler supply chain requirements. However, the transport and logistics bottlenecks have weighed heavily on production in sectors with more intricate supply chains, such as electronics and cars. This is apparent in a worsening in the "suppliers' delivery time" subcomponent of the manufacturing PMI to 37.2, from 48.2 in February.

In our new baseline we assume that the current lockdowns will be lifted gradually.   Amid falling daily COVID cases, local governments have started to ease restrictions somewhat since late April in Shanghai and elsewhere. This easing is likely to gradually continue. High-frequency indicators that track trucking, a measure of industrial activity, remained down 15% year on year in early May. While this compares positively with the 30% drop in the second week of April, Shanghai logistics remain constrained.

Moreover, other Chinese cities have tightened restrictions recently, including Beijing. The economic damage will likely be significant in May. This implies a slower recovery than in March 2020, when the economy bounced back after a quick relaxation of COVID lockdown measures.

As seen in China's prior lockdowns, mobility restrictions hit consumption harder than investment and industrial production.   The restrictions will have an especially big effect on smaller businesses in the services sector. A significant number will end up closing (for good), with substantial labor market implications. The registered unemployment rate jumped to 5.8% in March. It is likely to rise further. We forecast weaker imports than before, because of lower domestic demand and transport bottlenecks. Exports should also be affected, in part because of logistics and transport entanglements. These hits on China's external trade were visible in the trade data for April.

Assuming a gradual easing of the effects, China's year-on-year GDP growth will likely fall to 0.5% in the second quarter, from a 4.8% expansion in the first quarter.   The evolution of China's COVID policy and the extent and shape of the country's stimulus response will heavily influence economic growth in the rest of 2022.

In our baseline, there won't be further lockdowns with severe economic implications that match Shanghai's experience.

The Politburo in end-April indicated it sees some room to refine the country's COVID policies, to "minimize social and economic impact." However, no significant easing is likely. Indeed, the government will pursue strict containment measures after the Shanghai experience, in our view. Given that Shenzhen's more stringent response to omicron proved to be more effective in containing the virus, such an approach will likely prevail.

As to economic policy, the Politburo and President Xi Jinping in end-April called for more policy initiatives to shore up growth.   On the monetary side, the possibility for capital outflows and hefty currency weakening amid rising U.S. interest rates prevent the People's Bank of China from cutting interest rates significantly. The Chinese renminbi (RMB) has depreciated 5.8% against the U.S. dollar since early April amid outflows, and some further depreciation is likely. The central bank can use quantitative levers to support credit growth.

On the fiscal side, senior leaders have called for more spending on infrastructure, and tax cuts. The Politburo also signaled further property easing, including by loosening the restrictions on the use of presales by developers.

But we don't expect drastic uplift from stimulus.   Policymakers won't go all-out to bring growth close to the "around 5.5%" expansion target, in our view. Tentative signs suggest that China's leadership sees omicron as a legitimate reason to substantially miss the growth target. Moreover, policy stimulus will only be effective when lockdowns are lifted.

In our new baseline, with the effect of lockdowns and restrictions easing in the second half and some stimulus kicking in, whole-year GDP expansion will hit 4.2%.   After revising down by 0.7 percentage points our forecast for China's 2022 growth, somewhat higher expansion is likely in subsequent years. We raise our forecast for 2023 by 0.35 percentage points to 5.3%, and for 2024 by 0.15 percentage points to 5.1%.

With the lockdowns hitting consumer spending harder than investment and industrial production, the effect on other Asia-Pacific economies is contained. China's consumption is less import-intensive. The hit to 2022 GDP growth across Asia-Pacific should average around 0.2 percentage points, with Hong Kong, South Korea, and Taiwan somewhat more affected.

Our downside scenario features renewed lockdowns with significant economic effects in the third quarter.   Pending further outbreaks, authorities may implement lockdowns in one or more large cities in China. These centers could have significant economic heft and trade with other parts of China and internationally. In this scenario, which we assume involves economic setbacks in the third quarter, whole-year GDP growth would be only 3.5% (see table 1).

In terms of the relative effect on consumption, investment, industrial production and service sector activity, the "shape" of this slowdown will resemble that of the hit to growth in the second quarter, in our view.

Table 1

Financing Conditions

A weaker growth outlook for China and more volatile global markets is leading to tighter external financing conditions for Chinese corporates.   Reduced investor appetite and global tightening of monetary policy is affecting Chinese issuers' access to--and the cost of--financing in offshore bond markets.

Asian dollar-bond spreads have resumed their upward trend, with investor concerns about China's real estate sector and overall growth a key factor.   Meanwhile, benchmark rates for borrowing overseas are rising rapidly. This comes as central banks globally, but especially the U.S. Fed, seek to rein in surging inflation. With spreads and benchmark rates both rising, costs to refinance offshore for Chinese corporates will rise..

The divergence in monetary policies between China and the U.S. is further adding to external borrowing costs via capital outflow strains and currency depreciation.   Since mid-April, the onshore renminbi has depreciated 4.7%, while renminbi traded offshore fell 5.6% in value against the dollar. This makes it more costly for Chinese firms with income in renminbi to repay and service outstanding dollar debt.

Chart 3

Turbulent market conditions highlight refinancing risk.   Market access has become even more difficult for all borrowers but particularly those at the lower end of the credit spectrum. There has hardly been any issuance by a Chinese speculative-grade borrower in the offshore market so far in 2022.

Even prior to the Shanghai lockdown, China's speculative-grade issuers were already rolling back deal flow relative to previous years' volumes. Recent developments will likely exacerbate offshore financing difficulties of speculative-grade issuers. If China's growth outlook continues to deteriorate, the financing challenges could spread further up the credit quality spectrum.

Sovereign And Local Governments

China's weakened growth outlook in 2022 poses modest and temporary negative effects on its sovereign credit metrics. At our base case of 4.2%, or even the downside case of 3.5%, Chinese growth still outperforms most emerging-market economies globally. Moreover, recent developments won't likely materially affect longer-term growth.

Lower real GDP growth this year will weigh on fiscal performance indicators. Nevertheless, the central government will manage the fiscal shortfalls by tapping extra-budgetary reserve funds, in our view. Its debt issuance will only increase, compared with the budget quota, if the government passes a rare supplementary budget.

The more subdued growth outcome we now expect also implies that the government will refrain from aggressive credit stimulus. Vigorous initiatives are unlikely, as they would drastically increase financial system risk, or the risk of local government debt overhang.

There could be some easing of rules at the margins and a frontloading of infrastructure spending. However, Beijing won't significantly ease its policy of limiting off-budget government borrowing, in our view. Consequently, any rebound in off-budget debt financing will likely be modest.

For most local and regional governments (LRGs), a slowdown in Chinese GDP growth to 4.2%, or even 3.5%, won't materially diminish its regions' credit profiles, in our view. LRGs with cities that are more severely affected by the current lockdowns, such as Shanghai, may accelerate fiscal stimulus. While deficits could further widen in 2022, as in the case of the central government, many LRGs are likely to use reserve funds to cover their shortfalls. Their debt growth will not be excessive.

LRGs will balance fiscal discipline with a need for stimulus

The 2022 national budget suggests the LRG sector will need to maintain expansionary fiscal measures, including further tax cuts as well as higher spending. We expect the sector's deficit ratio (as defined by balance after capital account as a percentage of total revenues) will widen to 15%-20% for 2022. This compares with our estimated 12% level in 2021, and 16% in 2020.

Most LRGs over 2020-2021 performed better than their budgets, largely due to discipline on starting capital projects. While the governments could maintain these tight controls on capital spending for 2022, rising unemployment triggered by extensive lockdowns may prompt some to increase operating spending. This could widen their fiscal deficits, but would ease unhappiness about lockdown effects, maintaining social stability.

All said, LRGs will likely keep a firm hand on debt stock, including direct debt under the governments' own names, and debt issued by their key state-owned enterprises (SOEs).

Many options to sustain public finances

The central government controls new issues by LRGs. Beijing collectively assigned a new-issuance quota of RMB4.37 trillion to the LRG sector for 2022. This includes RMB3.65 trillion of special purpose bonds, to be used mainly for capital spending. The level remains high, even if it slightly below the RMB4.47 trillion issued by LRGs in 2021, and the RMB4.73 trillion issued in 2020.

Even if LRGs undertake more aggressive fiscal stimulus than budgeted in 2022, many LRGs have diverse, nondebt funding options to sustain their public finances without substantial debt growth. These include tapping cash reserves or accessing special transfers and subsidies from the central government. Our base case does not consider any supplementary approval of additional new issue quota.

Key SOEs will selectively increase debt. Such entities that provide important infrastructure services for their regions will at the same time maintain a high reliance on LRG support.

In line with policy direction from the center, such SOEs will likely slow growth if they operate in a commercially competitive area, and cannot find new projects where cash flows justify investments. This aligns with LRGs' general discipline of maintaining below-budget spending, and low growth in fixed-asset investment.

Financial Institutions

Shanghai will be another case study in how China balances public health priorities with economic goals. The government will likely ask Chinese banks to marginally increase loan growth to support the economy. Lower lending rates and fee reductions are also on the table, adding pressure to bank earnings. We expect banks to broadly lower bad-loan provision coverage to compensate for these strains.

Despite the slower growth, the overall reported nonperforming loan (NPL) ratios should remain stable. Disposals and write-offs will likely offset rising defaults from property developers and small enterprises over the next two to three years. Forborne loans will likely increase in 2022, but credit costs should remain on a stabilizing trend. Banks will release provision coverage that was well above regulatory requirements on average, in our view.

Small businesses are the pain point

Loans to small businesses will be hurt most. The entities tend to have high business concentrations. If their business operations fall within a locked-down area, the effect on sales could be crippling. Small businesses generally have low capacity to manage rising commodity prices that affect input costs and profit margins. Meanwhile, lackluster domestic demand dents revenue growth.

Micro and small enterprises (MSEs) account for around 12% of bank loans in China. Such loans have grown quickly under guidance from the central government to increase financial inclusion. It is also unclear if the borrowed money was invested profitably, such that entities can cover repayment. The policy push to increase the proportion of unsecured loans to MSEs could result in rising write-offs by banks. Lockdowns will amplify this trend.

Asset-quality pressures pose different levels of challenges to different Chinese banks. Institutions could recognize bad loans at various time intervals, with some pushing out to later years. The level of provision buffer can differ significantly between mega banks and some joint stock banks compared with smaller or aggressive banks.

Divergent effects across institutions

Banks' client bases, the health of the local economy, and estimated recovery prospects of individual banks will drive this decision. Although large banks tend have better risk management capability and a more diversified exposure compared with smaller banks, they are often involved in supporting government initiatives that are generally negative for banks' credit health. These include inclusive-financing services or providing support to selected companies under distress.

On balance, the COVID crisis will widen the gap between small and large banks, in our view. The strategic confrontation between China and the U.S. is a longer-term risk that weighs on China's economic growth, squeezing all Chinese banks.

The banking sector on average has sufficient buffers to withstand our economic downside scenario. However, the credit divergence between strong and weak banks will further increase.

We continue to see a strong tendency for the Chinese government to provide direct or indirect support to systemically important banks and other financial institutions with the potential to disrupt financial stability. Nonetheless, the 2020 bankruptcy of private Baoshang Bank Co. Ltd. is a reminder that bank failures are not impossible in China, if the government believes the effect of the closure to the financial system is manageable.

Nonfinancial Corporate

China's lockdowns will hit mobility-dependent sectors the hardest. These include transport, retail, and leisure. Loss of revenue and diminished cash flow from operations could weaken the credit profile of corporates, potentially resulting in defaults.

Lockdowns in many regions could further strain an already depressed property sector, by suppressing demand and sales and delaying construction and housing delivery. Housing sales will have the biggest fallout in the first half 2022 and the decline will be smaller in the second half. The downside risk is on renewed lockdowns in the third quarter that could result in a bigger sales decline in the second half. This could deepen the liquidity crunch and even insolvency risk for developers.

Sentiment, supply chains, and other sources of squeezing

The consumer discretionary sector will also be significantly affected by slower economic growth and sluggish income increase in the downside scenario.

Supply-chain disruptions are likely to persist through 2022 for Chinese corporates. In particular, delays in the auto sector recovery will likely persist, given slower sales and disrupted production among auto and auto-parts manufacturers.

Lockdowns in Shanghai and surrounding areas are also squeezing supply chains supporting tech hardware firms in China. For now, we see these effects as temporary. The government is planning to facilitate resuming supply-chain operations and this will mitigate many of the effects. That said, prolonged or renewed lockdowns will further squeeze the rating buffer of entities in manufacturing sectors in our downside scenario.

Higher costs are hitting the profit margins of midstream and downstream industrial production sectors. Meanwhile, the weaker consumption and economic growth makes it difficult for companies to pass on high energy and commodities costs to their customers.

Funding condition remains divergent for Chinese issuers. Financing conditions are still weak for developers in the offshore dollar bond market. The government is easing monetary policy to encourage more lending to mitigate COVID effects on the economy.

Debt growth will be moderate

Debt levels will grow modestly across our rated Chinese corporates in 2022, in our view, given slowing economic demand and investment appetite. Debt maturities are elevated over the next few years. If officials reverse their currently accommodative monetary policies, this would be challenging for many corporates.

Our downside-case projection (3.5% GDP growth for the country) may not result in a lower debt for corporates. Higher debt demand to make up for loss of operating cash flow could offset the lower investment appetite. Some corporates may borrow more to accumulate cash buffers to prepare for more lockdown uncertainties, by taking advantage of an accommodative onshore financing environment.

Chinese corporates with high foreign debt borrowing will also have to absorb the higher funding costs arising from Fed rate hikes and renminbi depreciation. This includes the property sector, which has substantial U.S. dollar debt outstanding.

Infrastructure

Although mobility controls have hit China's transport sector hard, lockdowns and the related economic slowdown won't materially affect the credit profile on rated infrastructure entities, in our view.

Governments are implementing measures to ensure the smooth functioning of transport and logistics services, with an eye on restoring the country's supply chains. This is vital for the economy. While the effect of lockdowns on toll roads is harder to offset, the hit will likely be temporary and more manageable than in 2020. In 2020, the toll moratoriums lasted for nearly three months and significantly hurt the operating cash flow of toll-road firms.

For port operators, the effect is unlikely to be much worse than 2020, during which national container throughput still grew 1.2% year on year. We expect the country's highway traffic and port throughput will recover gradually from the low levels of April. Most of our rated toll road and port issuers have sufficient credit buffer to absorb the effects.

Infrastructure spending not the panacea it once was

Beijing recently reiterated the significance of infrastructure investment to bolster the economy, particularly with the sharp slowdown underway in the second quarter. That said, the momentum of this investment through 2022 remains uncertain, given central government directives to tighten LRGs' fiscal discipline. These include more restrictions on the debt-ridden LGFV sector, and lockdown-induced delays to infrastructure projects.

Infrastructure spending is likely to rebound significantly from the low growth of 0.4% in 2021. However, the high year-on-year growth momentum in the first several months of 2022 will be hard to sustain over the full year if there is no additional and material government funding stimulus or substantial relaxation on new borrowing by LGFVs.

To boost infrastructure investment, Beijing is encouraging LRGs to accelerate drawdown by June 2022 most of their new-issuance quota for special purpose bonds (SPBs). The instruments are typically used for infrastructure and other key projects. While SPB issuance quotas remain largely unchanged from previous years, the encouragement indicates Beijing wants LRGs to use this quota quickly and fully.

This is consistent with the central government's policy to "open the front door and close the back door." In other words, it wants local governments to reduce dependence on off-budget funding via LGFVs, but to offer more access to on-budget bond issuance to fund key infrastructure.

We believe China will remain committed to reduce local governments' use of off-budget debt, and to rein in LGFVs' debt use. The central bank recently asked financial institutions to meet the reasonable financing needs of LGFVs. However, it is unlikely to dramatically reverse the overall financing environment for the LGFV sector.

Scrutinizing the LGFVs

Moreover, regulators and financiers are increasingly scrutinizing the worthiness of LGFV investments. The entities are finding it harder to find new projects that qualify for debt funding. The country is shifting its infrastructure investment to focus on transport, energy, environmental and hydraulic facilities. Policymakers are also aiming for a boom in "new infrastructure", mostly communication networks, new technology and computation infrastructures.

In contrast to the somewhat indiscriminate spending on traditional infrastructure in earlier years, new investments will focus on real demand and returns.

LGFVs' key new investments will mostly involve transport infrastructure, affordable housing, and municipal industrial parks. On a broader base, many new energy and other new infrastructures could also mostly involve a variety of non-LGFV entities.

Insurance

Insurers' revenues and earnings to come under strain

Slower economic growth will likely drag on Chinese insurers' revenue growth and the progress of ongoing reforms. Turbulent capital markets and lower interest rate could aslso strain insurers' earnings in 2022. This will in turn narrow insurers' capital buffer.

Despite an inevitable easing of mobility controls, reduced economic activity could hinder the premium recovery of property and casualty (P/C) insurers, particularly against a backdrop of declining new-car sales. Motor premiums still represent about half of P/C premiums in China.

Slowing economic growth could also translate into a higher delinquency rate for credit-guarantee insurance policies, weighing on underwriting performance. Insurers that target the Shanghai market will be hardest hit. Shanghai, which is under strict lockdown, represented 4.6% of P/C insurance premium in 2021.

Meanwhile, lockdowns and restrictions will likely delay the progress of the life insurance sector's product and channel reforms. Insurers' increasing use of digital platforms could still facilitate agent recruitment and training. That said, the sale of long-term protection products--which generate higher margins--still rely heavily on sales by individual agents with face-to-face interaction. Growth in the life insurance sector's topline and new business value will likely slow in 2022. Lower interest rates also translate into higher reserve provisioning for life insurers.

Insurers play a key role in markets as long-term institutional investors. Should a slower economy lead to prolonged market volatility and escalated defaults, reduced investment returns will further weigh on insurers' earnings. This will erode institutions' capital buffers.

The sector's investment in the real economy will likely expand. Insurers will want to capture a discount on risk weightings for investments into opportunities or projects deemed to be of a national strategic significance, or with other supportive policies (such as tax incentives), we expect.

Chinese insurers are vulnerable to credit and market risk because of their strong reliance on high-risk assets, such as equity (including investment funds) and alternative investments (which account for about half of the wider sector's invested assets as of end-February 2022).

Listed Chinese insurance entities reported 33.1% year-on-year decline in net income for the first quarter of 2022, due to a volatile share market. These insurers comprise China Life Insurance Co. Ltd., The People's Insurance Co. (Group) of China Ltd., Ping An Insurance (Group) Co. of China Ltd., China Pacific Insurance (Group) Co. Ltd., New China Life Insurance Co. Ltd., and China Reinsurance (Group) Corp.

If renewed lockdowns with significant economic effects result in further deteriorating market conditions, insurers with thin capital buffers will prove vulnerable. In addition, insurers may be asked to act to limit the market fallout. This more significant effect on economic activities will also hit the sectors' progress to shift to quality growth in 2022.

Structured Finance

Volatility of delinquency rates of our rated deals could increase in next two quarters

China's unemployment rate will be a key credit driver for our rated securitization transactions in the country. This encompasses mostly residential mortgage-backed securities, auto loan asset-backed securities (ABS), and credit card ABS. Based upon the discussion with our economists on the new GDP baseline and the trajectory of unemployment in the coming 12 months, the recent lockdowns and restrictions will likely to lead to liquidity issues for self-employed borrowers, or those that work in the services and hospitality industries. This has implications for the securitizations encompassing such loans. Also, lockdowns affect efforts to do in-person collection, which is mainly done to recover severe delinquencies.

The above factors will result in a greater fluctuation in the delinquency rates of our rated deals in the next two quarters, in our view. The effect may vary deal by deal given the scope of lockdowns and different geographical distribution of the securitized pools.

In our downside scenario with associated assumptions, we expect the volatility of the delinquency rates of our rated deals to last for an extended period of six to 12 months. The effect may also be uneven among our rated deals.

Despite escalating economic effects of the recent COVID lockdowns, the increase in delinquencies will likely be temporary and milder than that in early 2020, when COVID was a nationwide emergency. The recent lockdowns have been regional or city specific.

Moreover, most of our rated Chinese deals have relatively diversified underlying pools. Such attributes should help to alleviate the possible economic effect of city lockdowns.

Given the highly infectious nature of omicron, the lockdowns could widen. This could drag on China's economic growth and add pressure to the credit quality of securitized pools.

Editor: Jasper Moiseiwitsch

Digital design: Halie Mustow

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