Moody's downgrades China's rating

Moody's downgrades China's rating

Responding to Moody's assessment, the Chinese ministry of finance said the downgrade had been based on "inappropriate methodology" that exaggerated the country's economic difficulties, underestimated the potential of its reforms and evidenced a "lack of necessary understanding" of the country's budget laws.

Moody's has cut its credit rating for Hong Kong hours after downgrading China for rising debt levels, which it said would have "significant impact" on the Asian financial hub due to their close links.

However, it's not government debt that's concerning economists, but rather the amount of debt level of China's "state-owned enterprises" (SOEs) and debt carried by the country's local governments.

However observes believe runaway credit has accumulated to such an extent that these measures will be insufficient and the government will have to step in, leading to a leap in public debt levels.

The move comes as China tries to clean up a toxic brew of unregulated and risky lending that has for years fueled the economy's spectacular growth, although some analysts doubt Beijing's willingness to quit its debt addiction.

China's total outstanding credit climbed to about 260% of GDP by the end of 2016, up from 160 per cent in 2008, according to Bloomberg Intelligence.

Moody's changed Hong Kong's outlook to stable from negative, denoting that the risks to the city's rating are balanced.

"China will continue the process of financial deleveraging while preventing systemic financial risks as the nation has pledged to stick to the basic tone of "seeking progress while maintaining stability" this year", Scotiabank commented in its latest research report. A year ago the Chinese economy grew by 6.7% - the weakest since 1990.

It last downgraded the country in 1989.

ANZ said it sees a marginal negative influence from the downgrade on the domestic bond market as local investors are not sensitive to worldwide credit ratings, according to a report released yesterday.

This is for the first time in last twenty five years that the American agency has gone for such rating downgrade.

Major stock indexes across the European continent are dragging on Wednesday, pulled lower by news overnight that China's credit rating has been cut by ratings agency Moody's. Standard & Poor's rates China's debt a notch higher.

China is the world's second-biggest importer of both goods and commercial services, meaning its economic performance has a big knock-on impact around the world.

However, Liao said the move "makes no sense", because China's growth has improved from previous year and the threat of trade protectionism from US President Donald Trump's administration has subsided.

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