Published: Thu, September 21, 2017
Economy | By Annette Adams

Standard & Poor's downgrades China

Standard & Poor's downgrades China

Worldwide credit rating agency Standard and Poor's (S&P) downgraded China's sovereign credit ratings one step with stable outlook on Thursday. It said the country was forecast to expand by 6.7%, although stressed that this was as a result of Beijing pursuing growth targets at the expense of the quality of economic output.

The ratings on China reflect S&P's assessment of the government's reform agenda, growth prospects, and strong external metrics.

Rising debt levels in China have prompted S&P Global Ratings to become the latest major credit rating agency to downgrade the country's sovereign debt.

Influential economists and agencies have been queuing up in recent months to warn the rise in debt is unsustainable, with the International Monetary Fund and the Bank for International Settlements among the most prominent voices.

Explaining the decision, S&P, which last downgraded China 18 years ago, said it reflected its analysis of...

Moody's Investor Service had downgraded China to a similar rating in May.

S&P said that recent efforts by the government to reduce corporate leverage could stabilise financial risks in the medium-term.

The IMF said in August it expected China's total non-financial sector debt to rise to nearly 300 percent by 2022, up from 242 percent previous year.

The S&P said it may increase China's ratings in case of a quite slow and lower credit growth if it kept real GDP growth at healthy levels.

The Chinese economy expanded at a 6.9 percent rate in the first half of the year, according to official statistics. "We also expect credit growth in China to outpace that of nominal GDP over much of this period".

"It is in recognition of the reality that, concerns notwithstanding, the authorities are not planning to rein in credit growth in a forceful way", said Louis Kuijs at Oxford Economics in Hong Kong. Though the pace of credit growth may be easing, new bank lending and total social financing may hit fresh records this year and continue to outstrip economic growth.

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