MOODY’S DOWNGRADES CHINA
First one-notch cut in 30 years as economic growth slows, debt continues to rise
MOODY’S Investors Service downgraded China’s credit ratings yesterday for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.
The one-notch downgrade in long-term local and foreign currency issuer ratings to “A1” from “Aa3” comes as the Chinese government grapples with the challenges of rising financial risks stemming from years of creditfuelled stimulus.
“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” said the ratings agency in a statement, changing its outlook for China to “stable” from “negative”.
China’s Finance Ministry said the downgrade, Moody’s first for the country since 1989, overestimated the risks to the economy and was based on “inappropriate methodology”.
“Moody’s views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy, and underestimating the Chinese government’s ability to deepen supply-side structural reform and appropriately expand aggregate demand,” said the ministry in a statement.
At the same time, Beijing’s need to deliver on official growth targets was likely to make the economy increasingly reliant on stimulus, said Moody’s.
World stocks inched lower after the move, though Shanghai's main index recouped early losses to end marginally higher.
The yuan currency briefly dipped against the US dollar in offshore trading, as did the Australian dollar, often seen as a proxy for China risk. Reuters