Standard & Poor's Ratings Service yesterday released its biannual corporate report card on rated corporate issuers in the region, including China, Taiwan and Hong Kong, concluding that the region's upturning economies have led to an improvement in corporate credit quality.
"[The region's] overall credit quality has improved" since the publication of its report card in October last year, with no corporate downgrades or outlooks changing to negative between September last year and April," the report said.
"For the most part, mainland China has led the way in the current recovery highlighted by the upgrade of the sovereign credit in February 2004," said S&P's Hong Kong-based credit analyst John Bailey.
In late February, Standard & Poor's raised the sovereign rating for China from BBB/positive to BBB+/positive while saying in March that it had no plans to change its credit ratings for Taiwan despite the political upheaval following the nation's presidential election.
With China extending its recovery, there are also increasing signs of a strong rebound in Taiwan's high-tech manufacturing base, Bailey said, adding that, similarly, the outlook on Hong Kong's economy is much brighter than before.
According to the report, growth in Taiwan's industrial production has been led by the semiconductor industry, which has experienced a sustained increase in sales.
However, the political dispute arising from the election could ultimately have a negative impact on the local economy, although it's still too early to tell, Standard & Poor's said in its report.
Against the backdrop of an upcoming property recovery, weak performances by property investors in Hong Kong, which continues to experience a negative rental reversion, remain a negative factor. But Standard & Poor's noted that it will be a matter of time before rental incomes stabilize with underlying economic growth improving in Hong Kong.
Standard & Poor's report expressed concern over China's over-heated economy, saying its main challenge in future will be to slow it down, since some sectors -- including steel, autos, aluminum and property -- are exposed to overcapacity.
In the report, Bailey concluded by saying that "the future direction of corporate credit quality in greater China will depend to a large extent on how sustainable the economic recovery is in the US and how the mainland China government reacts to an overheating economy."
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