China criticizes S&P credit rating cut as ‘wrong decision’

China’s Finance Ministry on Friday criticized the cut in the Standard & Poor’s rating agency’s credit rating on Chinese government borrowing as a “wrong decision” and said it ignores the country’s economic strength.

S&P announced the change Thursday, citing rising debt it said increased financial risk. The move added to warnings China’s debt burden might drag on economic growth or threaten the financial system. It followed a similar downgrade by Moody’s Investors Service in May.

The timing is awkward for the ruling Communist Party, which wants to project an image of stability ahead of a twice-a-decade congress next month at which President Xi Jinping is due to be named to a second five-year term as leader.

S&P followed its China downgrade a day later by cutting its credit rating for Hong Kong, citing risks posed by their close ties. The agency said Friday it was reducing its long-term rating on Hong Kong by one notch, to AA+ from AAA, reflecting potential spillover risks. It said Hong Kong has a good economic outlook, sizable fiscal reserves and credible monetary policy, but that China’s downgrade is “exerting a negative impact” on Hong Kong because of “strong institutional and political ties” between them.

The Finance Ministry complained S&P ignored China’s stable economic growth and reform efforts. It noted official data showed the economy grew by 6.9 percent in the first half of 2017 over a year earlier and government revenue rose by nearly 10 percent.

“The Standard & Poor’s downgrade of China’s sovereign credit rating is a wrong decision,” the ministry said on its website. “This misreading neglects China’s good fundamentals and development potential.”

Total Chinese nongovernment debt rose last year to the equivalent of 257 percent of annual economic output, according to the Bank for International Settlements. That is unusually high for a developing country and up from 143 percent in 2008.

Communist leaders have cited reducing financial risk as a priority this year. They have launched initiatives to reduce debts owed by state companies, including by letting banks accept stock as repayment on loans. But private sector analysts say they are moving too slowly.