Here's where China's real estate troubles could spill over

cnbc.com:

BEIJING — China's real estate troubles could spill into other major sectors if the problems persist — and three particular businesses are most vulnerable, according to ratings agency Fitch.

Since last year, investors have worried that Chinese property developers' financial problems could spread to the rest of the economy. In the last two months, many homebuyers' refusal to pay their mortgages have brought developers' problems to the forefront again — while China's economic growth slows.

«If timely and effective policy intervention does not materialise, distress in the property market will be prolonged and have effects on various sectors in China beyond the property sector's immediate value chain,» Fitch analysts said in a report Monday.

Under such a stress scenario, Fitch analyzed the impact over the next 12 to 24 months on more than 30 kinds of businesses and government entities. The firm found three that are most vulnerable to real estate's troubles:

1. Asset management companies

These firms «hold a sizeable amount of assets that are backed by real estate-related collateral, making them highly exposed to prolonged property-market distress,» the report said.

2. Engineering, construction firms (non state-owned)

“The sector in general has been in difficulty since 2021.… They do not have competitive advantages in infrastructure project exposure or funding access relative to their [government-related] peers," the report said.

3. Smaller steel producers

«Many have been operating at a loss for a few months and could face liquidity issues if China's economy remains lacklustre, especially given the high leverage in the sector,» the report said.

Fitch said construction accounts for 55% of steel demand in China.

The slowdown in