S&P misses mark on rating, analysts say

Standard & Poor’s Global Ratings downgraded China’s long-term sovereign credit rating by one notch on Thursday to A+ from AA-, citing risks due to an accumulation of debt, but analysts said the company has failed to thoroughly understand China’s situation and exaggerated the risks it faces.

“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement. “We foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.”

The downgrade followed a similar credit cut by Moody’s Investors Service in May. Analysts said that as China’s economic growth stabilizes and its financial reform continues, it is resolving the financial risks caused by the growth of debt.

“S&P has failed to grasp China’s real situation and its conclusion is not solid,” said Liang Hong, chief economist at China International Capital Corp. Data show that China’s growth has stabilized in recent quarters at slightly lower than 7 percent and its corporate earnings are also improving, which will help ease its debt risks, she said.

Unlike Western countries, China has a very high savings ratio, which will help back up its debt repayment, analysts said. Also, they said, companies in China tend to resort to borrowing for their financing needs instead of directly tap- ping the country’s stock market, which is less developed than those of Western countries. That makes China’s debt levels seem high.

“It’s a matter of the efficiency with which funds are used, not crisis, and the real risks are not as serious as they look,” she said.

China should accelerate financial reforms to raise efficiency of financing, Liang suggested.