Daily Update: March 19, 2021

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China has relaxed its growth target and set new focuses that align the Asian nation with many of the Western nations it aims to compete with. But the first economy to lockdown due to the health crisis and rebound from the downturn has experienced an uneven recovery and faces an uncertain future.

Although China’s economy expanded 2.3% in 2020, the country has started this year with a sluggish recovery in domestic demand—save for some sectors, including the dairy industry—is slowing down both national and global expansion. Credit conditions have grown more complicated, with local governments shouldering bigger debt burdens as the government scales back its fiscal support, and high-profile defaults of local government-owned entities raising refinancing risks.

Regardless, the country is targeting growth of above 6% in 2021—a “gamechanger” move that falls below the consensus estimates of GDP growing between 7%-9%, confirms China’s shift to prioritizing long-term growth, and should be viewed as the lowest level of growth deemed politically acceptable by its government, according to S&P Global Ratings Chief APAC Economist Shaun Roache.

“Securing new priorities—including social welfare, deleveraging, the green transition, and technology independence—will mean adjustment costs and sacrificing some growth in the coming years,” Mr. Roache said in a recent report. “S&P Global Ratings thinks the latest growth target recognizes this trade-off, as well as the uncertainty of a post-pandemic world and China's inescapable long-term slowdown. The market may be surprised at how much tolerance the government has for slower growth if it reflects firm progress in these other priorities.”

President Xi Jinping pledged late last year that China will achieve net-zero emissions by 2060. In its recently-announced 14^th Five Year plan, the country committed to an 18% reduction in the amount of greenhouse gases it produces per unit of GDP by 2025, but didn’t include aggressive energy transition policies that could spur increased waves of green bond issuance.

"There was nothing impressive out of [the Five Year plan]," Mana Nakazora, an ESG strategist at BNP Paribas in Japan, told S&P Global Market Intelligence. "I'm not expecting green bonds to gain strong momentum to be issued.”

Analysts believe that the world’s most-emitting economy could still change course. "China may pull out a wild card" with additional details on how it will shift to clean energy to achieve its net-zero target, potentially after President Xi meets with U.S. President Joe Biden next month, Yoshihiro Fujii, an executive of the Research Institute for Environmental Finance, told S&P Global Market Intelligence. This week, talks in Alaska between China and the U.S., the Biden Administration’s first, turned blistering as both countries’ delegations criticized each other’s democracies.

“As China rebalances and resets, the rest of the world will have to adjust. The country is too big for that not to happen,” Mr. Roache said. “As China moves along a path to a consumption-driven economy, net zero carbon emissions, and technology independence, its trading partners will confront new challenges and opportunities. The journey is just beginning.”

Today is Friday, March 19, 2021, and here is today’s essential intelligence.

The Future of Credit

German Insurers: The Pandemic Heightens Low-Interest-Rate Challenges

Despite the severe recession related to the COVID-19 pandemic, S&P Global Ratings’ ratings on German insurers remain largely stable, owing to their diversified business, strong overall technical performance, and sound capital adequacy.

—Read the full report from S&P Global Ratings

The Health Care Credit Beat: $1.9 Trillion Stimulus Package Provides Temporary Boost To The Sector

S&P Global Ratings sees the $1.9 trillion American Rescue Plan (ARP) as a positive development for the health care sector, though S&P Global Ratings does not expect any direct rating actions. The ARP's health care provisions will improve revenue for many subsectors by expanding health coverage, aiding state Medicaid budgets, and accelerating vaccine and testing efforts.

—Read the full report from S&P Global Ratings

Banking Sector Under Pressure

Handelsbanken Unlikely To Sustain 'Exceptionally Low' Loan Losses – Analysts

Svenska Handelsbanken AB (publ)'s conservative risk culture and highly collateralized loan book have helped it achieve record low loan losses during the coronavirus pandemic. But analysts believe it will be hard for the Swedish lender to sustain these levels and expect its cost of risk in 2021 to more than double, if not triple, contrary to the trend anticipated for other large Nordic banks.

—Read the full article from S&P Global Market Intelligence

Listen: Street Talk: As ESG Gains Currency, Banks Need Long-Term Focus

Banks should not fall victim to focusing on short-term results and should instead work to deliver long-term shareholder value, particularly in a world increasingly focused on ESG, according to a veteran of the investment community. Fred Cannon, former director of research and head of equity strategy at Stifel Financial Corp. unit Keefe Bruyette & Woods Inc., offered his advice on the latest Street Talk podcast on how banks can best communicate with investors.

—Listen and subscribe to Street Talk, a podcast from S&P Global Market Intelligence

ESG in the Time of COVID-19

States Looking To Decarbonize May Need To Weigh Their Gas's Origin – Study

Calculating the upstream greenhouse gas intensity of each state's gas supplies, researchers at Georgia Tech's School of Civil and Environmental Engineering found that gas consumed in 2018 in the Lower 48 had methane emissions profiles that ranged from 0.9% to 3.6% of the total gas withdrawn that supplied states' consumption.

—Read the full article from S&P Global Market Intelligence

Renewable Energy Returns Outpace Fossil Fuels Over Past Decade: Study

Investment returns from renewable energy were triple those of fossil fuels over the last decade, according to a joint report by the UK's Imperial College and the International Energy Agency. The analysis examined the investment case for renewable energy and highlights a structural trend towards a lower-carbon global economy.

—Read the full article from S&P Global Platts

Industry Push For Greener Aluminum Production Drives Need For Transparent Price References

Metals and energy have a complicated relationship. Ferrous and nonferrous metals-making requires lots of energy, while melting and smelting generate significant CO2 emissions. Oil, gas and electricity can't get where they're needed without metal pipes, containers and conductors to transport them.

—Read the full article from S&P Global Platts

Federal Safety Rules Worry U.S. Retail Group But Gain Support From Labor Advocates

The Biden administration is expected to announce new COVID-19 workplace safety guidelines in the coming weeks, and despite a lack of details ahead of the release, the National Retail Federation is expressing concern about the potential cost of new regulations, while labor advocates say it is critical to lay out a uniform standard for protecting front-line employees.

—Read the full article from S&P Global Market Intelligence

The Future of Energy & Commodities

U.S. Coal Default Risk Down In 2021, But Access To Capital Still A Challenge

U.S. coal consumption is in a yearslong structural decline but took a further hit in 2020 as the COVID-19 pandemic drove a decrease in electricity demand. While 2021 appears to hold lower default risk across many sectors, some U.S. coal businesses remain in a precarious financial state.

—Read the full article from S&P Global Market Intelligence

Mexico's Pemex Discovers 1.2 Billion Boe Complex In Tabasco Region: CEO

Mexico's Pemex announced March 18 it has discovered over 1.2 billion boe of oil and natural gas in an onshore complex in the state of Tabasco, near the site where the company is planning to build a new refinery.

—Read the full article from S&P Global Platts

Cautious Saudi Aramco Expected To Maintain Conservative Course

Having already slashed its capex budget and delayed several projects, Saudi Aramco will release its full-year 2020 results on March 21, with market watchers aiming for greater insight on how the state oil giant is emerging from the worst market crash in history.

—Read the full article from S&P Global Platts

FERC Clarifies Order On Distributed Energy, Launches Demand Response Inquiry

The Federal Energy Regulatory Commission on March 18 agreed to make several important clarifications to a landmark rule opening wholesale power markets to aggregations of distributed energy resources, including a key determination that state opt-out rules for demand response resources do not apply to those types of aggregations.

—Read the full article from S&P Global Market Intelligence

Written and compiled by Molly Mintz.