S&P lowers outlook for China, Hong Kong
Downgraded to ‘negative’; credit rating could take hit
Standard & Poor’s on Thursday warned that excessive debt and government spending will curb economic growth in China, leading the ratings agency to lower the credit outlook of the world’s second-largest economy.
S&P lowered the outlook for China and Hong Kong from stable to negative, signaling that the agency could soon ding the underlying credit rating of both, barring a turnaround.
For now, China’s long-term rating is AA- and its short-term sovereign rating is A-1+, while Hong Kong’s long-term rating remains at a perfect AAA and its short-term issuer rating is A-1+.
“We revised the outlook to reflect our expectation that the economic and financial risks to the Chinese government’s creditworthiness are gradually increasing,” S&P said in a report. “This follows from our belief that, over the next five years, China will show modest progress in economic rebalancing and credit growth deceleration.”
The agency projected annual economic growth of at least 6% for China over the next three years but said government spending could top “what we believe to be sustainable levels” of 30% to 35% of gross domestic product.
It projected China’s GDP to top $10,000 per capita by 2019, up from $8,200 in 2016.
S&P lauded anti-corruption efforts and initiatives to privatize certain state-owned businesses but said the pace of those changes “may be insufficient” to maintain strong economic growth.
The agency is particularly concerned that Chinese political leaders will turn to government expenditures to bolster the economy instead of allowing market dynamics to take over.