Economists say China will ignore credit rating downgrade

23 September, 2017, 04:10 | Author: Leticia Walters
  • S&P cuts China's credit rating to A+ from AA-, cites risk from debt growth

S&P on Thursday cut China's long-term sovereign rating less than a month ahead of one of the country's most sensitive political gatherings, citing increasing risks from its rapid build-up of debt.

Investors appear to expect that Beijing will maintain stability in financial markets ahead of a key party congress that begins on October 18.

In a statement, S&P said it decided to make the call after concluding that China's "de-risking" drive that started early this year was having less of an impact on credit growth than initially expected.

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.

China's debt repayment ability has been ensured, which precludes serious debt risks, said Liu Shangxi, president of the Chinese Academy of Fiscal Sciences.

Chinese firms and wealthy business tycoons have taken control of assets including Legendary Entertainment, the USA film producer behind Jurassic World and Warcraft, buildings such as the Cheesegrater in London, and English football clubs including Southampton and Aston Villa.

Borrowing by local state-owned companies, including financing vehicles, are not considered government debt, according to China's budget law, the ministry said.

Unlike in previous years, when China's growth declined continually, the country's economic fundamentals have significantly improved in the past two quarters, worldwide organizations have gradually raised their forecasts of China's growth, and the renminbi has been surprisingly strong this year.

S&P's China downgrade represents waning confidence that Beijing can strike a balance between maintaining economic growth and cleaning up its financial sector. "While China's credit growth continues to outpace nominal GDP growth, the gap has actually narrowed this year".

Tan said broader lending by all financial institutions, excluding equity fund-raising, has started to rise after growing by a steady 12-13 percent in the last few years. Three well-known ratings agencies, Standard & Poor's, Fitch and Moody's have not changed their ratings on India for at least over a decade.

State news agency Xinhua quoted Chinese economists as saying the downgrade wouldn't impact on foreign investment, because the Chinese government was introducing policies to improve the business environment.

China stocks on Friday recouped most of their early losses as investors played down S&P's downgrade of China's sovereign rating and North Korea's threat of another nuclear test.

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