Moody's decline China's credit rating

Singapore, May 24: Wednesday's Moody's Investors Services slashed China's credit rating from A1 to Aa3, which expressed concern over the country's growing debt to downgrade such ratings by the American agency in the twentieth years. "Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform programme is likely to slow, but not prevent, the rise in leverage," Moody's said in a statement here.

"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," it said. The US ratings agency also changed its outlook for China to stable from negative on the basis of balanced risks.

The statement said the downgrade reflected expectations that China's financial strength would "erode somewhat over the coming years, with the economy-wide debt continuing to rise as potential growth slows". China's economy grew at the rate of 6.7 per cent in 2016, as compared with 6.9 per cent in the previous year. While the Chinese government budget deficit in 2016 was at around three per cent of gross domestic product (GDP), Moody's expected the government's debt would rise toward 40 per cent of GDP by 2018 and 45 percent by the end of the decade.

It also expected contingent and indirect liabilities to rise due to the policy bank loans, bonds issued by Local Government Financing Vehicles and other state-owned enterprises' investments. Moody's also said the economy-wide debt of the government, households and non-financial companies would rise, as economic activity tends to be financed with debt in the absence of a sizeable equity market. In this regard, the economic sector in China has not improved, despite recent reforms. "The risk price is incomplete, at the expense of partially determined lending by the government support or other governmental strategic estimates," it said.