Moody's Downgrades China Rating To A1, Revises Outlook To Stable
May 23 2017 - 9:59PM
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Moody's on Wednesday downgraded China's long-term local currency
and foreign currency issuer ratings by one notch to A1 from Aa3 and
changed the outlook to stable from negative, due to concerns over
the rising debt and slow growth and reforms as the government tries
to implement a shift to economic expansion driven by domestic
demand than exports.
The rating downgrade was the first from Moody's since 1989. The
country's outlook was lowered in March 2016 to negative.
S&P rates China's at AA- with a negative outlook. Fitch has
an A+ rating with a stable outlook.
With the latest downgrade, Moody's has placed China on par with
Japan.
The downgrade reflects expectation that China's financial
strength will erode somewhat over the coming years, with
economy-wide debt continuing to rise as potential growth slows, the
agency said in a statement.
"While ongoing progress on reforms is likely to transform the
economy and financial system over time, it is not likely to prevent
a further material rise in economy-wide debt, and the consequent
increase in contingent liabilities for the government", Moody's
said.
The stable outlook reflects assessment that, at the A1 rating
level, risks are balanced, the rating agency said.
The erosion in China's credit profile will be gradual and will
be eventually contained as reforms deepen, Moody's added.
The agency also stressed that that the importance the Chinese
authorities attach to maintaining robust growth will result in
sustained policy stimulus, given the growing structural impediments
to achieving current growth targets. Such stimulus will contribute
to rising debt across the economy as a whole, it cautioned.
The state-run news agency Xinhua reported that the Chinese
Finance Ministry has dismissed the rating downgrade from Moody's
saying that the move was based on the "pro-cyclical" rating
approach which is "not appropriate".
"These viewpoints overestimate the difficulties facing the
Chinese economy and underestimate the capabilities of China to
deepen supply-side structural reform and expand overall demand,"
Xinhua quoted the ministry as saying in a written statement.
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