First time since 1989 roku, the Moody’s Investors Service downgraded China’s rating from A1 to Aa3, changing it from “stable” to “negative”.
Moody’s Investors Service on Wednesday degraded China’s rating to A1 from Aa3, changing its outlook to stable from negative.
Marie Diron, senior vice president for Moody’s rating team, said to CNBC’s “Street Signs” on Wednesday that the catalyst for the degradation was a set of factors, including expectations that possible growth would drop to 5 percent by the end of the decade. It was Moody’s first degradation for the country since 1989, says Reuters.
“Official growth targets are also moving down, but probably more slowly. So the economy is increasingly reliant on policy stimulus,” she said, adding that was likely to spur increasing debt levels for the government. It’s really the size of the leverage, the trends in leverage as well as the debt servicing capacities of the institutions that have that debt. When growth slows, then that points toward slower revenue growth, probably slower profitability and somewhat weaker debt servicing capacity,” Diron announced.
It was no surprise that China’s finance ministry didn’t concur with the move. In a statement on its site, the ministry abnnounced that the degradation was based on an “inappropriate method” and that Moody’s was overestimating the issues China’s economy had to face, while underestimating the government’s efforts to tackle structural reforms and overcapacity.
Yet, Moody’s predicts that economy-wide leverage will grow further over the next years. “The outlined reform program is likely to delay, but not prevent, the growth in leverage,” Moody’s announced in a statement. “The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole”, they also added.
eXbino brings you the most important business and financial news from stocks, Forex and binary options markets. Available at your fingertips, you will always be up-to-date with us.