Moody's Investors Service says that maintaining robust economic growth will remain the priority of China's (Aa3 stable) authorities in 2016, but some of the implications of this approach will be credit negative.

Moody's notes that China's relatively robust GDP growth of 6.9% in 2015 owed to significant monetary and fiscal stimulus -- reflecting this focus -- which prevented a sharper slowdown from 7.3% in 2014.

Policy support in the pursuit of growth targets is likely to persist in 2016, with the credit-negative effect of postponing deleveraging and the reduction of excess capacity.

Moody's conclusions were contained in its just-released report on the Government of China, "Government of China: Stimulus Could Prolong Imbalances, a Credit Negative."

In the context of equity and currency market volatility and persistent capital outflows, Moody's further notes that it is becoming increasingly difficult for the government to achieve its growth target while steering the economy toward a more balanced structure.

While sustainable rebalancing advances one aspect of the authorities' policy agenda, a more rapid process would involve tackling excess capacity in parts of the industrial sector, with negative short-term consequences for the economy and potentially financial stability.

In Moody's view, China's authorities will allow the fiscal deficit to widen to around 2.5-3% of GDP in 2016, after 2.7% in 2015 and under 2% in the previous five years, to provide room for policy support. Government debt will rise slightly above 40% of GDP, still in line with similarly rated peers.

Moody's concludes that while fiscal and monetary policy supported overall GDP growth last year, they have not raised profitability in those sectors that the economy is rebalancing away from, such as heavy industry.

As stimulus continues, it is likely to increase system-wide leverage -- or at least prevent it from falling -- without boosting profitability. This will raise debt serviceability risks.