S&P Downgrades China Rating On Higher Risks
September 21 2017 - 4:19AM
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S&P Global Ratings downgraded China's sovereign ratings
citing higher economic and financial risks after a prolonged period
of strong credit growth.
The sovereign rating was lowered to A+ from AA-, S&P said in
a statement on Thursday. The outlook on the long-term rating was
stable.
The country faced a similar downgrade in May, when Moody's took
the rating down by one notch to A1, citing rising debt and slow
growth as factors triggering the action.
S&P's announcement came just a month ahead of 19th Party
Congress.
The rating agency observed that claims by depository
institutions on the resident non-government sector have increased
rapidly since 2009.
Although this credit growth had contributed to strong real GDP
growth and higher asset prices, S&P said it has diminished
financial stability to some extent.
In the medium term, the recent intensification of government
efforts to rein in corporate leverage could stabilize the trend of
financial risk, the agency added.
Despite government measures, S&P foresee the credit growth
in the next two to three years to remain at levels that will lift
financial risks gradually.
The ratings on China reflect S&P's assessment of the
government's reform agenda, growth prospects, and strong external
metrics.
S&P noted that the government has taken steps to bolster its
economic and fiscal resilience and also made considerable reforms
to its budgetary framework.
The agency forecast China's economic growth to remain strong at
close to 5.8 percent or more annually through at least 2020.
Further, S&P still sees China's external profile as a key
credit strength, despite the recent decline of foreign exchange
reserves.
The stable outlook on ratings reflects the assessment that China
will maintain its strong economic showing and improved fiscal
performance over the coming three to four years.
ING Bank economist Iris Pang does not agree with S&P that
economic and financial risks are rising. Possibly, the declining
leverage ratio is the reason for S&P changing China's outlook
from negative to stable, she said.
Ratings changes typically cause ripples rather than waves, Mark
Williams at Capital Economics said. In any case, the bulk of
China's government debt is bought by state-owned banks and held to
maturity, the economist noted.
The timing is awkward for China's leaders, immediately ahead of
next month's Party Congress, and arguably questionable on the basis
of recent economic and financial developments, Williams added.
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