Hong Kong's Tsang de­fends econ­omy af­ter Moody's out­look cut

The Pak Banker - - MARKETS/SPORTS -

HK Fi­nan­cial Sec­re­tary John Tsang de­fended the city's econ­omy af­ter Moody's In­vestors Ser­vice cut the city's long-term debt out­look be­cause of its links to China.

Moody's main­tained Hong Kong's long-term debt and is­suer rat­ings at Aa1 and down­graded the out­look to neg­a­tive from sta­ble be­cause it sees the city's credit pro­file track­ing China's, the agency said Satur­day. The firm low­ered China's credit-rat­ing out­look on March 2 as a ris­ing debt bur­den, fall­ing for­eign-ex­change re­serves and un­cer­tainty about au­thor­i­ties' ca­pac­ity to im­ple­ment re­forms weigh on its econ­omy.

"It's a to­tally wrong as­sess­ment. And they can just look at eco­nomic con­di­tions that we have, and ac­tu­ally, maybe it's re­ally time to con­sider an upgrade for Hong Kong," Tsang said in a state­ment posted on the govern­ment's web­site. "Hong Kong is in a good po­si­tion to ben­e­fit from the struc­tural re­bal­anc­ing in the main­land's econ­omy from in­vest­ment to con­sump­tion," he said in a sep­a­rate state­ment.

Hong Kong's econ­omy, de­pen­dent on China trade, may see "muted" growth over the next five years with a pos­si­ble in­crease in its bank­ing sec­tor's credit risk given its ex­po­sure to cor­po­ra­tions in the world's se­cond- largest econ­omy, Moody's said.

Chi­nese Premier Li Ke­qiang an­nounced a 6.5 per­cent to 7 per­cent ex­pan­sion goal last week, down from an ob­jec­tive of about 7 per­cent last year and the first range the govern­ment has of­fered since 1995. The na­tion has been burn­ing through for­eign re­serves to de­fend the yuan, de­plet­ing the stock­pile by $513 bil­lion last year. That ' s the first an­nual drop in more than two decades, at a time when debt lev­els have reached an un­prece­dented 247 per­cent of gross do­mes­tic prod­uct.

Hong Kong is "very ex­posed" to any de­te­ri­o­ra­tion in China, given that about 60 per­cent of the city's bank credit goes to main­land bor­row­ers, said Kevin Lai, chief econ­o­mist for Asia ex­clud­ing Ja­pan at Daiwa Cap­i­tal Mar­kets.

If global in­vestors start to feel neg­a­tive about China and with­draw cap­i­tal from Hong Kong, the city will face "a huge liq­uid­ity cri­sis as it will be very dif­fi­cult for Hong Kong to get money back from China be­cause of credit is­sues or cap­i­tal con­trols," Lai said by phone.

Tsang said the risk as­so­ci­ated with main­land-re­lated lend­ing is "man­age­able." The credit qual­ity of main­land bor­row­ers is high, given the ma­jor­ity of them are large state-owned en­ter­prises and multi­na­tional com­pa­nies, he said.

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