State support mitigates issuers’ climate risk exposure in China

Whilst the potential for an increase in occurrence of natural disasters remains high in China, government support should mitigate the negative credit impact on issuers’ profiles, according to Fitch Ratings.

A record heatwave in China this summer affected hydropower generation and the agricultural sector, particularly in the Yangtze River region. This impaired the capacity of utilities to generate electricity, disrupting manufacturing activity. Research from the World Bank projects increase in warming leading to greater probability of hazards such as droughts, floods and heatwaves.

The insurance sector is one of the most exposed to the rising frequency of extreme events, and Fitch anticipates that claims will cover an increasing portion of economic losses from natural disasters. According to Swiss Re, insured catastrophe losses totalled around 10% of economic losses from natural disasters in China – a much higher proportion than in developed western markets.

The likelihood of Chinese issuers facing a greater credit impact from extreme events could rise if economic growth decelerates over a prolonged period, the ratings agency stated, raising fiscal pressure across local governments and limiting their capacity to focus on spending categories that seem less imperative in the short run, such as investment in climate resilience.

The government has provided aid on multiple fronts, including preemptive measures, post-disaster recovery and emergency policy response during the natural disasters in recent years.

    Share Story:

YOU MIGHT ALSO LIKE


Cyber risk in the transportation industry
The connected nature of the transport and logistics industries makes them an attractive target for hackers, with potentially disruptive and costly consequences. Between June 2020 and June 2021, the transportation industry saw an 186% increase in weekly ransomware attacks. At the same time, regulations and cyber security standards are lacking – creating weak postures across the board. This podcast explores the key risks. Published April 2022.

Political risk: A fresh perspective
CIR’s editor, Deborah Ritchie speaks with head of PCS at Verisk, Tom Johansmeyer about the confluence of political, nat cat and pandemic risks in a world that is becoming an increasingly risky place in which to do business. Published February 2022.