S&P downgrades China, says rising debt is stoking economic, financial risks

BEIJING: S&P Global Ratings has downgraded China’s long-term sovereign credit 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.

S&P’s one-notch downgrade to A+ from AAcomes as Beijing grapples with the challenges of containing financial risks stemming from years of credit-fuelled stimulus to meet ambitious government economic growth targets.

“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, adding that the ratings outlook was stable.

S&P had said in June there was a “real” chance of a downgrade and a decision would be made based on whether China is able to move away from a credit-driven growth strategy. The demotion follows a similar move by Moody’s Investors Service in May.

While S&P’s move put its China ratings on par with those of Moody’s and Fitch, the timing raised eyebrows just weeks ahead of a twice-a-decade Communist Party Congress (CPC), which will see a key leadership reshuf- fle and the setting of policy priorities for the next five years.

“The downgrade is a timely reminder for the authorities that China needs to bite the bullet on some of the more painful reforms that have been left to last, namely corporate deleveraging and restructuring of stateowned companies,” said Rob Subbaraman, an economist at Nomura in Singapore.