After India, China now slams credit rating agency Moody's after downgrade

Posted May 30, 2017

Moody's said it expects the financial strength of China's economy will weaken in the years ahead as growth slows and debt continues to rise.

Moody's Investors Service reduced China's sovereign credit rating on Wednesday, citing the country's rising debt and slowing economy.

Despite the concerns raised by India, Moody's in November 2016 went on affirming India's BAA3 rating with a positive outlook, ignoring Economic Affairs Secretary Shaktikanta Das' arguments of "stable external debt parameters and the slew of reforms introduced in the realm of foreign direct investment".

"The downgrade in Hong Kong's rating reflects Moody's view that credit trends in China will continue to have a significant impact on Hong Kong's credit profile due to close and tightening economic, financial and political linkages with the mainland", it said in a statement.

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As a effect, Moody's expects the government's direct debt burden to rise slowly towards 40% of GDP by 2018 and closer to 45% by the end of the decade, while other fiscal risks will rise from issues including high levels of off-book local government borrowing.

"Moody's expects that economy-wide leverage will increase further over the coming years".

Chinese officials have said that Moody's analysis is based on the use of an "inappropriate methodology".

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.

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Estimates of China's total nongovernment debt have risen from the equivalent of 170 percent of annual economic output in 2007 to 260 percent previous year.

Moody's decision to take the country from A1 to Aa3, the same category as the likes of Japan and Israel, has "frustrated" Beijing, says The Guardian.

Chinese growth was officially the weakest seen for 26 years, but still came in at a dizzying 6.7%.

For the first time since 1989, a major debt rating agency downgraded their outlook on China.

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The state planner, the National Development and Reform Commission, added in a statement that China's debt risks are generally controllable as measures to lower corporate leverage have achieved initial results, and systemic risks from debt are relatively low. Not great, according to one of the world's top credit rating agencies. Standard & Poor's rates China's debt a notch higher. 'Move makes no sense' But Liao said the move "makes no sense" because China's growth has improved from past year and the threat of trade protectionism from US President Donald Trump's administration has subsided.