Standard & Poor’s has cut its outlook for China’s credit rating from “stable” to “negative,” saying the nation’s economic rebalancing is likely to proceed more slowly than the ratings firm had expected.
The nation’s credit rating is “AA-” with a negative outlook, S&P said in a statement, which also affirmed the long-term and “A-1+” short-term sovereign credit ratings.
“We revised the outlook to reflect our expectation that the economic and financial risks to the Chinese government’s creditworthiness are gradually increasing,” S&P said in the statement.
“This follows from our belief that, over the next five years, China will show modest progress in economic rebalancing and credit growth deceleration,” it said.
China’s economic expansion will remain at or above 6 percent a year in the next three years, S&P forecast.
The investment rate might be “well above” what S&P says are sustainable levels of between 30 and 35 percent of GDP.
“In our opinion, these expected trends could weaken the Chinese economy’s resilience to shocks, limit the government’s policy options and increase the likelihood of a sharper decline in trend growth rate,” it said.
A downgrade could follow if S&P sees a higher likelihood that China seeks to stabilize growth at or above 6.5 percent by increasing credit at a “significantly faster rate” than nominal GDP growth, it said.
Ratings could stabilize if credit growth is moderated to levels in line with economic expansion, S&P said.
On March 2, Moody’s Investors Service cut its outlook on China’s sovereign bonds from “stable” to “negative,” warning of increasing Chinese government debt and further capital outflows.
However, the agency kept China’s credit rating at “Aa3,” the fourth-highest investment grade, citing the large size of buffers in the Chinese economy, including high domestic savings.
Additional reporting by AFP
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