Hong Kong Financial Secretary John Tsang (曾俊華) defended the territory’s economy after Moody’s Investors Service cut the territory’s long-term debt outlook because of its links to China.
Moody’s maintained Hong Kong’s long-term debt and issuer ratings at “Aa1” while downgrading outlook from “stable” to “negative,” because it sees the territory’s credit profile tracking China’s, according to an e-mailed statement from the agency.
The firm lowered China’s credit-rating outlook on March 2 as a rising debt burden, falling foreign exchange reserves and uncertainty about authorities’ capacity to implement reforms weigh on its economy.
“While Moody’s has changed the rating outlook for Hong Kong to ‘negative’ from ‘stable,’ it continues to recognize Hong Kong’s credit strengths and strong economic fundamentals,” Tsang said in a statement. “Hong Kong is in a good position to benefit from the structural rebalancing in the mainland’s economy from investment to consumption.”
Hong Kong’s economy, dependent on Chinese trade, might see “muted” growth over the next five years, with a possible increase in its banking sector’s credit risk given its exposure to corporations in the world’s second-largest economy, Moody’s said.
Chinese Premier Li Keqiang (李克強) announced a 6.5 percent to 7 percent expansion goal last week, down from an objective of about 7 percent last year. The nation has been burning through foreign reserves to defend the yuan, depleting the stockpile by US$513 billion last year, the first annual decline in more than two decades, at a time where debt levels have climbed to an unprecedented 247 percent of GDP.
“The credit quality of the mainland borrowers is high, given the majority of them are large state-owned enterprises and multinational companies,” Tsang said, referring to Chinese borrowers in Hong Kong. “Risk associated with mainland-related lending is manageable.”
Moody’s also warned that unfavorable developments in China could lead to a sharp correction in Hong Kong’s elevated level of property prices, exacerbating the pressure on banks’ asset quality and profitability.
The rating agency said the strong political link embedded in the “one country, two systems” policy creates the risk that Hong Kong’s institutions are likely to lose some independence over time as China grows.
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