Date
17 October 2017
Standard & Poor's said “a prolonged period of strong credit growth has increased China’s economic and financial risks”. Photo: AFP
Standard & Poor's said “a prolonged period of strong credit growth has increased China’s economic and financial risks”. Photo: AFP

S&P downgrades China’s credit rating

Standard & Poor’s cut its sovereign credit rating on China, becoming the last of the three major rating agencies to lower its view on the country’s creditworthiness, the Wall Street Journal reports.

The downgrade came weeks before the Communist Party of China is to hold its 19th national congress, which will decide the country’s next top leadership.

In a statement on Thursday, S&P said its rating on China has been lowered to “A+” from “AA-” to reflect its assessment that “a prolonged period of strong credit growth has increased China’s economic and financial risks”, according to the newspaper.

The rating and the view of risks in China now match those of Moody’s Investors Service, which lowered China’s rating in May, and Fitch Ratings, which did so in 2013, the report said.

“The S&P conclusion isn’t exactly head-slapping news to the market or Chinese regulators,” the Journal quoted David Loevinger, a managing director at fund manager TCW in Los Angeles, as saying.

“It’s a bit ironic given that China’s fundamentals are the strongest they’ve been in two years,” Loevinger added.

China’s GDP grew 6.9 percent in the first six months of the year, although recent data shows slowing business activity amid higher borrowing costs.

“The timing is awkward for China’s leaders,” said Mark Williams, chief China economist at Capital Economics.

It is “arguably questionable on the basis of recent economic and financial developments”, Williams wrote in a note.

But most analysts agree that S&P raised a valid concern about China’s credit expanding faster than output.

Beijing has been trying to clamp down on rampant borrowings. Financial regulators have acted to discourage banks’ lending to each other or to other financial firms, the WSJ said.

As a result, credit growth, as measured by M2, hit a low in August, the newspaper said.

– Contact us at [email protected]

RA/CG

EJI Weekly Newsletter

Please click here to unsubscribe