Surging Chinese debt levels prompt S&P Global Ratings to downgrade sovereign credit


Surging Chinese debt levels prompt S&P Global Ratings to downgrade sovereign credit

S&P Global Ratings downgraded China's sovereign credit rating to A-plus on September 21 from AA-minus, shifting its outlook to stable from negative.

S&P said the stable outlook reflects its view that China will maintain robust economic performance and improved fiscal performance in the next three to four years.

The agency said the downgrade reflected a "prolonged period of strong credit growth", which increased the country's financial risks.

The decision by S&P, which downgraded China's debt from AA-minus to A-plus, follows a similar decision in May by Moody's, which had also raised concerns about the growing debt of the world's second largest economy.

CHINA RATING: Markets in Asia were getting their first chance to react to Standard & Poor's announcement late Thursday that it was downgrading China's credit rating, citing rising debt levels.

"Though without any near term credit risks amid Beijing's recent regulatory tightening and de-leveraging efforts, the key uncertainty still rests in the longer term on Beijing's capability to resolve its debt conundrum".

While the credit growth has fuelled China's economic expansion and high asset prices, "we believe it has also diminished financial stability to some extent", the agency said.

But Shen said it was wrong to overplay the impact of debt on China's economic growth.

The cost of default protection on Chinese sovereign debt earlier this month fell to its lowest levels in more than two years, according to IHS Markit.

While downgrading China also means that India is a step closer to China's rating, the gap is still huge.

To be sure, China's economic growth has unexpectedly accelerated this year, racing ahead at 6.9 percent in the first half, but much of the impetus has come from record bank lending in 2016, a property boom and sharply higher government stimulus in the form of an infrastructure spending spree. "In this regard, the decision by S&P to cut China's credit rating is hard to understand", the ministry concluded.

Claire Dissaux, head of global economics and strategy at Millennium Global Investments in London, told Reuters the debt problem in the country was huge: "China's credit problem is the biggest problem we have ever seen in any country and probably justifies a lower rating".